Copper price retreats despite Grasberg supply worries

[Ben Graham]

Copper prices fell on Monday, giving back part of last week’s strong gains even as supply concerns persist following deadly disruptions at Indonesia’s Grasberg mine.

Benchmark three-month copper on the London Metal Exchange (LME) slipped 0.7% to $10,639.50 per tonne by mid-afternoon trading, erasing earlier advances. The decline followed copper’s biggest weekly gain in a year. On the CME, three-month futures traded at $11,115 per tonne ($5.0525 per pound), down 1% for the day.

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A stronger US dollar weighed on prices. The greenback advanced after France’s prime minister announced his resignation and Japan appeared set to appoint a pro-stimulus leader. A firmer dollar typically pressures commodities priced in the currency, making them more expensive for buyers using other currencies.

Grasberg tragedy deepens supply risks

The copper market remains on edge over tighter supply amid disruptions at major operations. Freeport-McMoRan (NYSE: FCX) declared force majeure at its Grasberg copper and gold mine last month after mud flooded underground tunnels, forcing production cuts.

On Sunday, the company confirmed that all seven workers missing after the incident have been found dead, following the discovery of five additional bodies. Grasberg, located in Papua, is the world’s second-largest copper mine and a key global supply source.

Macro focus shifts to US data and Fed policy

Investors will turn their attention later this week to US economic data, including jobless claims and inflation expectations, though releases may be delayed due to the ongoing government shutdown.

Comments from Federal Reserve officials also influenced sentiment. Dallas Fed President Lorie Logan said on Friday that the central bank remains further from its inflation target than from maximum employment, signaling caution on rate cuts.

Analysts expect that an eventual easing cycle could support copper and other commodities by weakening the dollar. However, Jefferies analyst Christopher LaFemina warned that aggressive monetary easing could fuel an inflationary spike in commodity prices that risks damaging economic growth.

“A Fed rate-cut cycle, despite the economy being relatively strong, should be bullish for commodity prices,” LaFemina wrote in a note. “Still, there’s a risk of an inflationary commodity price spike that damages the economy.”

(With files from Bloomberg)