Copper hits 4-1/2 years peak on Chile supply fears, upbeat risk appetite

Copper hit a 4-1/2 year high on Thursday, lifted by concerns over the potential for wage negotiations at the world's biggest copper mine to disrupt supply, and by healthy appetite for cyclical assets as stock markets rallied. Union leaders at the Escondida mine in Chile operated by BHP submitted wage demands late last week, sparking fears of a possible strike.
Failure to reach a labour deal during last year's negotiations led to a 44-day stoppage at the mine, which accounts for 5 percent of global supply. Worries over fresh disruption have helped to lift copper by 6 percent this week. "This is mostly linked to fears that the wage negotiations at Escondida will turn into a prolonged strike, and therefore there will be some loss in output," said Capital Economics analyst Simona Gambarini.
However, robust stock levels and early indications that talks could be constructive suggest the current strength in prices may be overdone, she said, raising the risk of a pull-back. "We don't expect this to last," she said. "There is a lot of speculation in the market." Three-month copper on the London Metal Exchange rallied 1.7 percent on Thursday to hit $7,348 a tonne, its highest since January 2014. It ended the day at $7,332 a tonne, up 1.6 percent.
The premium of three-month copper over the cash contract fell to $1.50 a tonne, its lowest since March 2017, signalling tightness in near-term supply. On-warrant copper inventories at LME warehouses - representing metal not earmarked for delivery and therefore available to the market - increased by 6,625 tonnes to 237,275, exchange data showed on Thursday.
LME copper could test resistance at $7,305 a tonne, Reuters technical analyst Wang Tao said on Thursday, a break above which could lift the price to $7,373. World stocks hit a three-week high and the euro and German Bund yields also rose as investors priced in a potentially earlier than expected winding down of stimulus from the European Central Bank.
Aluminium closed down 1.5 percent at $2,310 a tonne. LME aluminium looks neutral in a range of $2,323-$2,341 a tonne, Reuters technical analyst Wang Tao said. LME zinc finished down 0.3 percent at $3,183 a tonne, while lead ended 0.3 percent higher at $2,534 and nickel closed down 0.7 percent at $15,520. Tin was up 1.7 percent at $21,325.