Summary

  • A constitutional moment in Chile and a looming election in Peru to play critically important roles in influencing price movements.
  • Mining workers’ strike, if it happens in Chile, may propel prices higher.
  • Weak Chinese industrial data has had little impact on prices.

South American production to affect the price

Copper prices climbed up further today, as fears over happenings in Chile and Peru neutralized the impact of reduced Chinese factory activity.

Copper faces trying times as two of the world’s leading producers embark on political restructuring that could have far-reaching implications on price movement. Chile, the world’s largest producer, is in the process of reviewing its constitution, with the handling of mineral royalties among the most significant factors being debated. 

Over the weekend, Chilean voters handed the left-wing groups the control over the assembly to write the country’s new constitution. This is expected to tilt the scales against international mining companies whose dominance of the copper sector has been opposed by a significantly large portion of the country’s populace. 

There is widespread speculation that the nation is preparing to significantly raise mining royalties through taxes in addition to requiring greater accountability for environmental protection and social safeguards. These could significantly increase production costs.

At the same time, Chile’s South American neighbor, Peru, is scheduled to hold its presidential elections next month, in yet another potentially destabilizing event for copper. Peru, the world’s second-largest producer of copper, is likely to have a former workers union leader as president.

Pedro Castillo, who is the front-runner according to polls, has promised to introduce radical changes to the mining sector. Among his radical stances are the threats to nationalize mines and retention of at least 70% of mineral resource profits in the country. With the election less than one month away, copper prices are likely to experience a period of volatility.

The events in Chile and Peru have put the copper market on a high alert, with as much as 42% of the commodity’s supply at stake. In addition, the role played by Western corporations in the copper market could be significantly impacted by the threats of nationalization of mines from the Peruvian socialist presidential candidate. Such uncertainties are likely to reduce investor interest in the two countries, thereby reducing supplies and leading to a price spike.

In Chile, for example, hiking of mineral royalties could disadvantage Glencore and Anglo American, the companies in charge of Collahuasi and Escondida mines, which are two of the world’s largest mines.

In addition to looking legal battles, Chile’s copper mines are grappling with threats from workers unions, who have set their eyes on a strike following their rejection of BHP’s new wage offer. This could bring activities to a halt at Escondida and Spence. The latest rejection by the workers came last Friday and may linger for a longer period, considering the newfound momentum by the left-leaning constitution-writing assembly.

In a rare occurrence, China’s role is diminished

Reduced industrial activity by China was expected to significantly cool down the price momentum. China’s Yangshan import premiums were on a record low of $38/ton.  This was largely attributed to the high prices of copper, which may have adversely affected demand. However, despite this, copper was up by 1.2% at the time of writing, as events in South America seemed to have taken center stage. London copper futures were up by 1.3% to trade at $10,373 per ton.

Technical outlook

Copper will find support at $4.67 and will likely ride on the favorable RSI of 52 to the first support at $4.78, beyond which it will attempt the next barrier at $4.79.

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