The iPath Bloomberg Copper Subindex Total Return ETN (NYSEArca: JJC) jumped more than 6% last week thanks to an obvious catalyst. Some market observers are pondering the potential for labor strikes in 2018 in Chile, the world’s largest producer of the red metal.
Some commodities traders are wagering that copper can regain its recently set highs and then some. Industrial metals like copper, nickel, iron and steel have all rebounded in recent months as traders bet on improving global economic conditions would bolster demand for the base metals after prices hit multi-year lows.
“Under a new labor code and with higher prices inflating workers’ pay expectations, Chilean mines will negotiate contracts with 32 unions next year,” reports Bloomberg. “That represents about three-quarters of the country’s copper output, or about one-fifth of world production. Globally, labor negotiations could trigger disruptions at mines producing about 40 percent of supply, according to Barclays Plc, which this week raised its price estimate.”
The iShares MSCI Chile Capped ETF (NYSEArca: ECH) rose nearly 8% last week and is up more than 25% this year. Although Chile is viewed by some market observers as the most advanced and open South American economy and it is undeniably home to Latin America’s highest sovereign credit rating (AA-), there is also no denying the country’s dependence on copper exports as a driver of government revenue. Copper accounts for almost two-thirds of Chile’s government receipts.
“Any disruptions resulting from strikes could quickly tighten up the market — as happened this year with stoppages at Escondida in Chile and Grasberg in Indonesia. If that occurs, prices could go back above $7,000 in the first half of the year, Bank of America Corp. analysts said last week,” according to Bloomberg.
Barring labor strikes in Chile, copper market observers expect the market to be fairly balanced next year with a modest rise in production. Earlier this year, there was a 44-day strike at a Chilean copper mine, the longest in the country’s history. Since 2009, the country has seen three copper strikes lasting longer than a month.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.