Metals Page: Supply problems boost price of copper

Production problems stemming from labor troubles in various parts of the world are said to be largely responsible for the situation.

Analyst John Lydall of securities firm First Marathon Securities, in a recent report, notes there are two main areas where difficulties continue, the Bougainville operation in Papua New Guinea and the Highland Valley Copper property in British Columbia. He also cites production losses from operations in Chile, Peru and Mexico.

In Papua New Guinea, rebel land owners in the area of the Bougainville operation forced closure of the mine in May through terrorist-type activities. The rebels are seeking an independent state and compensation from the owners of the Bougainville mining project.

Meanwhile, in western Canada, workers at Highland Valley have been on strike since early July. The company declared force majeure in early August. Last year, Highland Valley produced 400,000 dry tonnes of copper concentrates.

In Chile, workers at Codelco’s El Salvador division have also been on strike, while in Peru a mine- worker strike was recently concluded. In Mexico, the government is calling for a joint ownership, between itself and the workers, of the Cananea copper mining complex which went into bankruptcy in August.

Copper prices, Lydall says, will probably continue to rise as production losses mount.

Looking to the longer term, Metals & Minerals Research of London foresees copper production by the end of the year advancing more strongly than consumption, despite the current round of disruptions in supply.

“Only a very small market deficit is thus projected and most of it has already occurred,” writes the research company. “Next year is expected to see a steady stock build-up as output finally surges ahead and demand stagnates.”

The company predicts an average copper price of $1.25-1.30 for this year, and 80-90 cents in 1990. It is confident inventories will remain tight and the lower prices witnessed in 1984-86 will not be reached.

Metals & Minerals recognizes the possibility of the disruptions becoming more extensive, perhaps to the extent of a bull market materializing. “While we recognize the inherent unpredictability of these issues, our forecasts are based on the assumption supply problems will remain a feature, but will not entirely dominate the market,” writes the company.

“Continued price volatility and spikes are likely, but against a background of softening demand we do not expect new price highs.”

Copper demand enjoyed an excellent first half thanks to a buoyant auto industry and sustained construction activity in many areas. But the company foresees a weakening in the general global economy affecting the metal’s consumption. Gold-price forecaster Martin Murenbeeld, who has re-located to the west coast, writes, in one of his weekly reports, of the effect pol itical events around the world may have on the price of gold.

To help illustrate his point, he refers to the brief impact (on the price) the Beijing killings in China had, and the non-impact of the election violence in South Africa. The former, he says, was “new news” and the latter “old news” which tended to blend in with the over-all background noise.

“Our general view is that political developments have their biggest impact in a rising gold market, when market sentiment is already positive because of prevailing economic and financial conditions,” Murenbeeld writes.

Several examples are given to support the theory, including the 1979 invasion of Afghanistan by the Soviets. Gold, in a strong uptrend prior to the invasion, shot up dramatically.

“The point is, the relationship between gold and political disruptions/uncertainties is not invariable. It may itself be a function of those factors which cause gold to be in a bull phase or a bear phase,” writes Murenbeeld.

“With gold in a bear phase, as now, it will take a significant mine stoppage in South Africa — not a threat thereof — before the gold market responds.”

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