Another Copper Miner Strike?

BASE METALS

Copper: Copper prices gave up early-morning gains as a rise in oil prices and global yields weighed on the industrial metals complex. LME copper was trading near $14,490, while US prices fell 0.29% to $6.63. Supporting copper, though, is news of further strikes at global copper mines. In the Philippines, workers at Philex Mining Corporation voted to go on strike. This follows moves from workers at Antofagasta’s Centinela copper mine in Chile. Meanwhile, BHP has requested a government mediation to avert a potential strike at the Escondida mine, which is the world’s biggest. Together, these three mines account for around 5.5% of global copper production according to CRU principal analyst Craig Lang. Given that the copper market is tight on inventories currently outside of the US, the strikes are having a larger-than-normal impact on prices.

The market is also bracing for the return of Chinese traders, who are in the midst of a week-long holiday, which has limited a key demand signal for copper. It is expected that Chinese traders will likely be on the bid amid low stocks, though high prices have historically been a deterrent. For copper, stronger resistance from higher oil prices is starting to be felt. Higher oil prices are once again reigniting worries over potential hits to demand, creating a cautious tone. Meanwhile, signs of industrial weakness in China and an absence of a Chinese bid due to holiday are offering resistance to the upside. Recent factory activity data from China showed a modest recovery in growth, although future conditions are likely to be scrutinized for domestic demand signals. Heavy reliance on exports for the industrial sector raises risks to the outlook for copper as geopolitical uncertainty and rising trade frictions play a more dominant role.

Zinc: Zinc was little changed.

Aluminum: Aluminum lost 0.5%.

Tin: Tin dipped 2.3%.

Lead: Lead fell 0.6%.

Nickel: Nickel lost 1.1%.

PRECIOUS METALS

Gold: December gold contracts maintained a narrow range overnight as the dollar and global yields rose amid reports of Houthi attacks in Saudi Arabia and continued fiscal stress in France. Markets continue to assign an 80% probability to an October hold, but a December hike remains fully priced. Elevated bond yields and renewed oil-price pressure remain supportive of the dollar and negative for gold. The Fed outlook also remains as a headwind for gold prices. Fed Governor Waller this morning said that additional rate hikes will likely be needed to lower inflation to target, but noted there was “flexibility” about the pace of increases. He is the third Fed official this week to indicate that the bank prefers a pause in policy in October, as policymakers look to further evidence to assess when an additional tightening would be necessary. His comments were reflective of the tone of September’s  meeting minutes. Policymakers discussed whether persistent inflation could broaden and become entrenched. They generally agreed that the labor market was near maximum employment and growth remained solid, reducing the need to protect against downside employment risks. The main policy question was therefore not September’s hike, which everyone supported, but how much further to tighten: most expected another hike by year-end, although they differed over whether it was needed under their baseline outlook or primarily as insurance against upside inflation risks. Recent survey evidence has continued to support the idea that economic growth remains robust, which gives ample reason to expect yields will move modestly higher over the next couple of months following their rapid rise recently. These dynamics are likely to contribute to a challenging environment for gold over the coming months.

Silver: December contracts are down 2.02% to $59.07.

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