Copper Prices

A rally in copper prices is expected to pick up pace as higher demand from China exacerbates supply shortages sparked by outages at large mines, Goldman Sachs said.

Copper, which is used as a proxy to gauge China’s economic health, has had a torrid time in the past few years. China’s economic wobbles led to a reassessment of demand and fueled a broad-based slump in commodities, prompting companies to slash investments.

Many investors unable to sell Chinese assets due to the country’s capital controls instead dumped copper to express their unease.

But there have been signs of recovery recently.

The copper market is gripped by fears of a supply squeeze as potential outages threatens a market which has slashed capital expenditure in the last few years since a sustained broad-based commodities slump since the summer of 2014.

MMG produced just 300,000 tons of copper in the first 11 months of 2016–just a small fraction of the 20 million tons globally–but the news of copper supply disruption is the third this week to spook the market after similar news from the world’s top two largest mines.

Over in Indonesia, Freeport-McMoRan Inc warned it will reduce output at the Grasberg mine, the second largest in the world, as the company deals with a smelter strike and struggles to renew its mining permit.

The supply disruptions come just as China’s economy appears to be on the mend.

Since the Escondida workers ended their strike in March (the midpoint of the lengths of the prior two industrial disputes related to contract negotiations at Escondida during 2006 and 2011) alongside a one-month shipping delay from Grasberg, there will be a combined production loss of almost 100,000 tons, or 1.8 percent of quarterly world mine supply, they said.

Copper prices have rebounded since 2nd quarter, and with production tightening, prices may continue to rise.