Copper and molybdenum are becoming the focus of a global shortfall to meet many base metal demands. As the value of these particular base metals rise, investors will be increasingly desperate to purchase companies set to profit from this commodity super cycle. This week's volume will focus on the factors moving copper and molybdenum to monthly and possible record highs.
Copper futures for September delivery closed at $3.5945 per pound in New York Friday. That is the highest close since May 11th of this year. The value of Copper has jumped 6.2% in the past two weeks. Why the increase? Demand is simply not being met. Labor disputes and a lack of solid producing mines are limiting the output of this metal. Suppliers have failed to meet rising demand from China. Copper inventories have fallen 42% this year in London, mainly due to China and its continued consumption.
Workers throughout the Americas are fed up with the working conditions and believe they have enough leverage to create change. Copper, like all tightly traded commodities is very sensitive to supply disruptions. The market reacts quickly and usually excessively to threats of strikes, delays, closures or any type of disruption. This week's threats have been abundant coming from mines in Chile, Peru, Canada and Mexico.
The major news is with the Collahuasi Copper Mine, located in Chile. The mine is owned by Xstrata PLC and Anglo American both owning 44%. A Japanese consortium owns the other 12%. In the year 2004 the project partners completed a $584 million dollar expansion program, reportedly giving it a long term capacity of 500,000 tons of copper per year. The mine is currently in negotiations with workers to prevent a strike scheduled to start July 9th.
Miners in Chile, the world's largest producer of copper have been on strike over wages since June 25th. In Peru 110,000 workers will walk off the job July 10th commencing a two day strike. The strike has been initiated to protest the companies' efforts to restrict the creation of new unions. With the environment of workers on strike, or threatening to strike we anticipate the value of copper to jump this week. We believe there will be a correction in the price of copper after the hysteria and fear around the continued strikes diminish. An analyst at Barclays Capital recently stated that, "While labour actions continue to hang over the copper market, prices will remain supported at higher levels." The atmosphere right now is very climatic as many companies and workers from both sides at their respective mines appear to be waiting for the other to make a move. We are also awaiting a bounce back in the US dollar which could easily cut into the value of many base metals. Base metals are denominated in dollars, thus any rise in the dollars value makes them more expensive for holders of other currencies. We are exceptionally bullish on copper for the moment, but need to factor in that the dollar will not stay at these levels forever.
from Pinnacle Digest |
