Copper boom or bust? Here’s three countries to watch

Copper boom or bust? Here’s three countries to watch
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Strikes in Chile’s largest copper mine, as well as pending negotiations in the world’s second largest mine in Indonesia, are amongst the most pressing factors affecting copper prices in the coming year.

Copper prices have reached an all-time high since June 2015. However, the expectation of growing Chinese demand for copper as well as speculations surrounding infrastructure spending by the new government of President Trump will be defining factors for the rise in copper prices. Here’s three countries and developments to watch in regard to worldwide copper prices.

Workers strike in Chile

Amongst copper-exporting nations, Chile’s production accounts for nearly one third of global copper production. The Escondida mine, in Chile’s Atacama Desert, is the world’s largest copper mine, accounting for about 5% of global production. Disruptions at this mine are expected to push copper prices to $3 a pound (future trading reached a price of $2.68 a pound last week).

Miners at the Escondida mine, controlled in its majority by the British- Australian mining company BHP Billiton, have decided to go on strike over negotiations on benefits and compensation. Previous strikes by workers at the Escondida mine, in 2006 and 2011, have paralyzed production for nearly one month. Patricio Tapia, the union leader at the Escondida mine has explained that workers are prepared to strike for up to two months, if necessary.

The cutback in production that will result from this strike will not only affect prices worldwide, but will also affect Chile’s GDP. Analysts predict that despite the price increase, a one month strike could cause Chile’s GDP to decrease up to 0.2%.

Copper mining in Indonesia

Issues in relation to export permits for copper mining in Indonesia further strained world supplies. Freeport-McMoRan, the Phoenix-based mining company operating the Grasberg mine in Indonesia faced trouble exporting copper out of the country due to a ban on ore concentrate exports imposed by the Indonesian government in January 2017.

Freeport was to be granted a temporary permit to continue its export operations but so far the negotiations with the Indonesian government have not been fruitful and the mining company is considering the possibility of having to cut back on production.

China’s role as an importer

China, considered the world’s leading copper-importing nation, is expected to increase its demand. Imports from Chile into China increased 26.7% during 2016, and the demand is expected to continue to grow, especially initiating the second quarter of 2017.

Nevertheless, a potential trade war with the United States could alter copper consumption patterns in China and greatly affect the demand and price of copper worldwide. Since President Trump’s rise to power in the United States this past November, there is great speculation on the potential impacts of a trade war with China.

Nevertheless, President Trump’s campaign rhetoric on promising greater fiscal stimulus and infrastructure investments boosted prices at a growing rate of 5.3% since last November. Analysts believe that this initial spike in copper prices after the November election will not have much of an influence on prices in the long term as will the situations in exporting nations and China.

Copper prices are usually used as a good indicator of the general health of a nation’s economy. As with other commodities, it is usually the case that when copper prices increase, the price of the US dollar weakens, and vice-versa.

However, considering the current factors that are driving up prices, higher prices do not currently represent a boost in the economy but rather a combination of troublesome factors coming together. Therefore, the issues faced by the Escondida and Grasberg mines signify a loss of 1.8% of world mine supplies.

About Author

Astrid Hasfura

Astrid Hasfura Dada is currently pursuing a Masters Degree in Security Policy at The George Washington University’s Elliott School of International Affairs. She focuses on risk analysis and transnational security with a special interest in Latin America.