Global copper market headed for hot water
While Rio Tinto and OZ Minerals had the management expertise and good fortune to ensure there were no injuries when their respective mines in Utah and South Australia suffered wall slides, multinational miner Freeport-McMoRan was not so fortunate. At least 28 lives were lost on May 14 when there was a tunnel collapse at the company's Grasberg mine in Indonesia.
Freeport, which has both underground and open-pit operations at Grasberg, attempted to maintain mine production by switching its focus to the open pit, but tragedy struck again on June 1 when material overflowed from a bin and killed a man in a truck.
This confluence of accidents sparked action from the Indonesian government, which has ordered a halt to all operations at Grasberg until a thorough safety probe is completed.
"Exports mean nothing if there are lots of people dead," Mr Dede Suhendra, an official from Indonesia's ministry of minerals, said this week.
The safety probe is expected to close all operations at Grasberg for at least three months, and with the mine ranking as the world's second-biggest producer of copper, the halt will have an impact on global copper markets in its own right.
When combined with a six-month delay at Rio Tinto's Kennecott mine in Utah, the market could miss out on 250,000 tonnes of expected copper supply this year.
While that is only a bit more than 1 per cent of global supply, it is likely to be enough to swing the well-balanced copper market from having a small surplus of supply over to a shortage of supply.
UBS commodities analyst Tom Price said there were other recent events that threatened to curb copper supply in the months ahead, and duly force up the price.
The Democratic Republic of the Congo has announced plans to ban exports of copper and cobalt as soon as July or August, in an effort to force miners to build multibillion-dollar smelters and refineries within the nation's borders.
The tactic - designed to stoke jobs and industry in the impoverished African nation - is not a new one, and Indonesia is trying to impose a similar one on other commodities.
The ruling is bad news for companies such as ASX-listed Tiger Resources, which has been targeting copper in the DRC in recent years. Tiger shares lost about 30 per cent of their value since the ban was announced in late April.
DRC is Africa's second-biggest copper producer behind Zambia, and when you also consider the usual spate of worker strikes in the world's biggest copper producing nation - Chile - the copper market starts to look short of supply in the near term.
"If you add all these up, it's between 2 million and 3 million tonnes of mine supply globally that's at risk, and that's about 10 to 15 per cent of global mine supply," Mr Price said.
Hit by the broader commodities slump between February and April, copper regained more than a third of those losses in May.
"There's some evidence that the market recognises that, the CFTC [Commodity Futures Trading Commission] trade was busily going net short and now that's reversing and they are seeing that the trade is tightening," Mr Price said. "It is certainly the most appealing of the base metals group; aluminium, nickel, zinc and lead look really oversupplied but copper is the standout." With BLOOMBERG
Frequently Asked Questions about this Article…
A tunnel collapse at Freeport‑McMoRan’s Grasberg mine on May 14 killed at least 28 people, and a separate incident on June 1 killed another worker when material overflowed from a bin. The Indonesian government ordered all operations halted while a safety probe is completed — a probe expected to keep Grasberg closed for at least three months — because of the human cost and safety concerns.
The article notes that a combination of the Grasberg halt and a six‑month delay at Rio Tinto’s Kennecott mine could remove about 250,000 tonnes of expected supply this year (a little over 1% of global supply). UBS analyst Tom Price also warned that, when adding other risks, between 2 million and 3 million tonnes of mine supply — roughly 10–15% of global mine output — could be at risk.
Yes. The piece explains that the market could flip from a small surplus to a shortage because of the disruptions, and UBS analyst Tom Price said those events are likely to force prices up. It also notes that copper recovered more than a third of earlier losses in May and that speculators (CFTC positions) were reversing net short bets, suggesting tightening market sentiment.
The article mentions Freeport‑McMoRan (Grasberg fatalities and operational halt), Rio Tinto (Kennecott delay and a wall slide in Utah), and OZ Minerals (wall slide in South Australia). It also references ASX‑listed Tiger Resources as being hit by policy moves in the DRC.
The DRC announced plans to ban exports of copper and cobalt as soon as July or August to force miners to build domestic smelters and refineries. That policy announcement hit companies targeting DRC copper — for example, Tiger Resources’ shares fell about 30% after the ban was announced in late April, according to the article.
Yes. The article points out that the usual spate of worker strikes in Chile (the world’s biggest copper producer), together with policy moves in the DRC and safety shutdowns in Indonesia, add to the near‑term risk of tighter copper supply.
Tom Price said the recent events put between 2 million and 3 million tonnes of mine supply at risk (around 10–15% of global mine supply), which could push prices up. He also described copper as the most appealing of the base metals group, while aluminium, nickel, zinc and lead look oversupplied.
Investors should watch the outcome and length of the Grasberg safety probe and any extension of the shutdown, updates on Rio Tinto’s Kennecott delay, policy moves or export bans from the DRC, strikes or disruptions in Chile, and price/positioning signals such as CFTC trader positions and monthly copper price movements — all of which the article highlights as drivers of near‑term copper supply and price risk.
Call 1300 880 160
Start a chat
Schedule a call
