Copper is falling below $ 4, suggesting the global economy is in trouble

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Written by boustamohamed31

The rise of the metal is losing momentum, a worrying sign of economic growth

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Copper’s rise is losing momentum, a worrying sign of economic growth, and investors are betting that demand for electric vehicles will offset supply oversupply.

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The price of the metal used to make everything from electrical wires to roofs briefly fell below $ 4 a pound this week, an important psychological threshold.

Copper is considered an indicator of economic health, as it is a key contributor to a wide range of important elements, such as infrastructure projects and many consumer goods. It even plays a major role in the transition to greener energy, as metal is a crucial component of electrification.

Copper investors and mining companies had a good crisis with COVID-19 as prices rose at the start of the pandemic. But copper has been declining recently as rising interest rates and fears of a global recession have dampened expectations that demand will continue in the near future.

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The change in sentiment about economic prospects is now testing expectations that longer-term demand for copper will offset the disinflationary effect of projections that predict surplus production in 2023 and 2024.

“People thought that (copper) demand was stable enough to go through this period of surplus without a real material decline in copper prices,” said Shane Nigel, an analyst at National Bank Financial. “But obviously the inflationary pressures we’ve seen, fears of tightening interest rates and fears of only a global slowdown or recession put this demand at low risk.

Now, copper seems to be entering a period of volatility. In March 2020, it began to rise, rising to $ 4.94 per pound at the end of February 2022, from $ 2.17 per pound at the start of the pandemic – 127% growth. After reaching its peak, it fell 18 percent to about $ 4 a pound this week.

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The trend is hitting honey producers registered in Canada. Vancouver-based Teck Resources Ltd. fell 9.2% to $ 40.23 per share on June 23; Vancouver-based Ivanhoe Mines Ltd. fell 5.4% to $ 7.18; and Toronto-based Hudbay Minerals Inc. has fallen 9.2% to $ 5.24.

By comparison, the iShares Core S & P / TSX Capped Composite Index, an exchange-traded fund designed to copy the wider Canadian stock market, has changed little.

Demand for electrification and stable economic growth are expected to push copper supplies into deficit by the middle of the decade, which is good for copper investors in the long run. The question is what happens between now and then.

Excess copper is expected to grow over the next two years as new mines appear online. Ivanho Mini Ltd. is aims to increase production at its Kamoa ore complex in the Democratic Republic of the Congo, adding as much as 450,000 tonnes in 2023 and an additional 500,000 tonnes in 2024.

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Meanwhile, other mining companies are also close to completing multibillion-dollar projects: Teck Resources Ltd. aims to almost double its honey production in 2023, as his Quebrada Blanca 2 project in Chile goes online, potentially adding 318,000 tonnes a year.

“You can start to see the deficit start to form around 2025, 2026,” Nagle said. “So there may be a period of instability, but the market will appreciate some of these favorable long-term fundamentals; the only question is how close or short-sighted the market will be in the interim.

The global recession is not the only substitute. Inflationary pressures are creating tensions between miners and the large, unionized workforce that operates many copper mines, especially in South America.

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Earlier this week, the Chilean Copper Workers’ Federation announced a national strike after Codelco (Chile’s National Copper Corporation) said it would close its Ventana smelter. Codelco said it was closing the smelter for environmental reasons, but a response from 25 unions showed how rising inflation could exacerbate tensions with workers and jeopardize future supplies.

Last year, BHP Group Ltd. a hair avoids strike with workers at its Escondida mine in Chile, the world’s largest copper mine, amid reports in local media that it has agreed to give each union member a one-time $ 23,000 bonus in recognition of time worked. of the pandemic.

In 2017, the same union organized a 44-day strike, which led to a 1.3% drop in the country’s gross domestic product.

“In this environment, especially with the increase in the cost of living, you have to think that the next time they show up for labor negotiations, (unions) may not necessarily be ready to accept a one-time bonus payment,” Nagle said. “So, if these discussions eventually become a little more controversial, we could see that some supplies have been withdrawn from the market.

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