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Copper

Copper (chemical symbol: Cu) used to be the thermometer of the world economy (hence its nickname "Dr. Copper") as it is used in all sorts of manufacturing, but especially construction and everything connected to electric power, which translates obviously to activity.

 

Usually megaprojects like open pit copper mines result in years and years of very difficult permitting processes, lawsuits and environmental protesting, but Chile understands the importance of such sources of income, and have created a very mining friendly context for foreign mining companies to invest in their country. However, a turn towards environmentalism in Chilean politics for the last year or so has limited enthusiasm for large foreign investments in mining, for example Glencore partly backed out on a large project on the Chilean/Argentinean border, and is only continuing the development of this project on the Argentinean side of the border. Pascua Lama is another example of the ending of the not so formal stance of Chile not too long ago, but it must be said that this disaster is in  large part due to operator Barrick itself.

Last few years it appeared copper was used as collateral for Chinese financing deals on a large scale (just like aluminium and probably other metals). Because of it, the Western financial world feared there were massive stockpiles of copper in Chinese warehouses, waiting to hit the markets when those deals had to be unwound because of government politics/investigations in shadow banking systems etc. Fortunately for the price of copper, it appeared that the copper used for this deals was rehypothicated so many times, that the actual amount of physical copper being sold if any wasn't enough to really disturb market prices. The price of copper did fall though when this story came out in the beginning of June 2014 but this scare was shortlived:

The real downfall started a few months later, based on new production coming online, a declining oil price, a strengthening US dollar but especially a slowing down of Chinese growth and increased stockpiling, aggrevated by copper future trading and short contracts on negative sentiments. After a low in February 2015 the trading party seems to be over now, and Dr. Copper himself recovers a bit fortunately.

The price of copper at Nov 3, 2015 is $2.34/lbs. This is still above most mine's production costs of $1-2/lbs, but as copper mines require huge sums of capex (usually above $1B), the profitability isn't enough for constructing most new projects, so a lot of projects will be shelved or simply not financed for now. Besides this, a number of large, new projects under construction will come online soon as those projects started construction a few years ago, when copper ranged between $3.5-4/lbs, and will continue to put pressure on prices. A fine example is the colossal Las Bambas project in Peru, owned by MMG:

As problems in China persist and increase on all levels of the economy, although the central government is trying to crank up growth again with yet another program of useless infrastructure and construction, I expect the price of copper to be rangebound between $2.00 and $2.40 for quite some time. After 2017 a lot of closures are expected, and by then I expect the current investment drought to generate results, as demand likely will outscore supply by then.

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