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Supply Disruptions Could Support Copper Prices in 2018

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Supply issues

As we noted previously, Freeport-McMoRan (FCX) expects strong copper demand globally this year. The company also pointed to supply-side issues that are expected to hit mined copper supply in 2018.

Richard Adkerson, Freeport’s CEO, said during the company’s 4Q17 earnings call, “This year there are a lot of labor contracts in Chile and Peru coming up and you can expect those negotiations to be challenging and it could be supported from a supply standpoint. So, Codelco has a real challenge in maintaining production. All these things are challenges for the industry but they’re supportive of supply”

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Labor talks

Among the most notable mines that will be negotiating labor contracts in 2018, BHP Billiton’s (BHP) Escondida mine is the largest copper mine globally. The mine faced labor action last year, which had a negative impact on BHP Billiton’s copper production. In 2017, we saw labor-related incidents at several mines (ANTO) including mines owned by Southern Copper (SCCO) and Teck Resources (TECK). Since copper prices are currently near multiyear highs and commodity markets seem to have put the worst behind them, labor unions might be a bit more demanding during labor negotiations.

Indonesia contract

According to Freeport, it signed a two-year labor contract in Indonesia in December. The company has to sign a new labor contract every two years in accordance with the Indonesian laws. While Freeport might have reached a deal with the labor union, an agreement with the Indonesian government on its long-standing impasse has been elusive. Next, we’ll see what Freeport said about its ongoing negotiations with the Indonesian government.

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