The price of copper has slumped, but there's one factor which could cause its value to spike

A mechanic examines a dumpster truck in Escondida, Chile. (Oliver Llaneza Hesse / Getty Images)
  • Copper prices – often seen as a barometer of the global economy – have fallen by almost 20% over the last 3 months.
  • But CBA analyst Vivek Dhar said ongoing industrial disputes at BHP’s Escondida copper mine in Chile could see prices “spike”.
  • Overnight, workers at Escondida – which accounts for 4-5% of global copper supply — voted in favour of a strike which could last at least 30 days.

Copper prices came under further pressure last night, as ongoing US-China trade war fears continue to weigh on the commodities outlook.

But Commonwealth Bank commodity analyst Vivek Dhar says ongoing industrial disputes at BHP’s huge Chilean copper mine could provide near-term support for the base metal.

Overnight, “workers at BHP’s Escondida copper mine voted in favour of a strike after the union rejected the company’s final offer for a collective contract,” Dhar said.

“If extended negotiations fail, which include government-mediated talks, a labour strike could commence as soon as mid-August.”

Copper prices managed to climb off a two-week low overnight but still finished down by around 0.5% for the session.

It forms part of a broader three-month downtrend, which has seen the prices fall by almost 20% from multi-year highs reached in May:

Investing.com

The base metal is often described by traders as “Dr Copper” — a joking reference to the fact that copper itself has obtained a Ph.D. in economics.

Due to its extensive use in industrial production, manufacturing and consumer electronics, price movements in copper are often an accurate predictor of turning points in the global economy.

Trade war fears and a coordinated tightening of monetary policy by global central bank are cited as two key factors that could weigh on the global growth outlook.

And along with copper’s recent fall, the latest JP Morgan data showed global manufacturing activity slowed to a one-year low in July.

However, Dhar said supply side factors could reverse copper’s recent decline.

BHP’s Escondida mine is the largest copper mine in the world, accounting for around 4-5% of global copper supply.

Dhar said the worker’s union at Escondida has indicated it is willing to strike for at least 30 days, and two other large Chilean copper mines also face “imminent disruptions”.

“Supply disruptions, particularly at Escondida, could see copper prices spike,” Dhar said.

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