Copper is the undisputed king of industrial metals, particularly because its conductivity is ideal for most industrial uses.
Earlier this year, we asked our readers to pay attention to copper because it is one of the key indicators of growth on a global level. When copper starts to bottom, it will clearly reflect growth in China and the world as TSR reported.
It doesn’t look pretty.
This chart for November and the reports on copper today is interesting since it coincides with China’s Renminbi approval as main world currency by the International Monetary Fund (IMF.
This chart bluntly says: Expect more American unemployment and in many other places around the world.
China is the biggest force behind that dynamic, given it has the second-largest economy, and it is one of the main importers of materials like copper.
Today’s Financial Times report entitled “Shanghai takes command in metal markets” said,
“…global prices for copper down to a six-year low…
The price moves highlight China’s influence on global metals prices as the boom that was spurred by the country’s demand comes to an end…The Shanghai Futures Exchange plans to launch an oil futures contract to international investors this year. If the same volumes can be achieved as those in metals that could further cement China’s global influence on commodity prices, according to analysts.
Copper prices rose 80 per cent between 2001 and 2011, but have since slumped 50 per cent. While western hedge funds have taken out big bets on the metal’s decline this year, Chinese traders have had the most impact on the price.
Globally a total of 3.46m tonnes of copper is pledged short, worth one-third of the total amount of copper across all the world’s exchanges, according to data from Marex Spectron. But the number of tonnes of copper sold short in Shanghai has been more than double that of the LME, the data show.
That is in contrast to January, when copper fell precipitously during China’s daytime trading. Then the largest short position was on the LME.”
Nine large copper producers in China have agreed an initial plan to cut refined metal production by more than 200,000 tonnes in 2016 or around 5 percent from this year’s level, Reuters reported.
China is the top refined copper producer and consumer, and the country represents 40% of global copper demand, which is the demand of the U.S, Europe and Japan — combined. Thus making these numbers worrisome to mining companies around the world.
Since 2013, prices for copper have fallen around 40 percent, which now means that supply of copper is too high, especially since China has seemed to be not interested as much in the material. Obviously, when there is too much supply and not enough demand, then the prices for said product fall dramatically. Copper is used in a number of products including electronics, cars, wiring, plumbing, and building construction. The biggest boom for China’s infrastructure development was within the past 10 years, in which China was always looking to build and develop massive infrastructures, but that boom is finally starting to fade out.
This trickles to unemployment around the world.
In August, US miner Freeport-McMoRan’, the world’s largest listed copper producer, cut mining employees and contractors by 10 percent. This means about 800 jobs in Arizona were cut and also 200 in New Mexico. The company also planned to suspend the operations at Miami in Arizona, and scale back output by 50 percent at the Tyron site, which is located in New Mexico. The 2016 capital spending plans were also dramatically cut back another 29 percent. This summer the company said it would be scaling back spending targets on both the oil-and-gas projects, and this was due to the severe decrease in energy prices.
However, the US miner announced last month that it would cut half of the output from its Sierrita mine in Arizona and was considering a full shutdown according to Financial Times report.
There are many different copper miners that have higher production costs than even Freeport, which means that they will be the first to have to cut jobs and layoff workers as the supply will continue to rise and the demand will continue to fall. Some have already announced layoffs, including BHP Billiton and Anglo American, and Anglo American said it will be eliminating about 53,000 jobs.
China’s CNMC Luanshya Copper Mines to put 1,600 staff at its Baluba operation on forced leave.
Konkola Copper Mines (KCM), owned by Vedanta Resources Plc, axed 133 employees on forced paid leave.
China Copper Mines in Chingola announced last month that they will have over 200 job cuts and the suspension of US$50 million worth of investment which would have resulted in the creation of 1,000 jobs.
Swiss mining giant Glencore’s Mopani Copper Mines in Zambia also confirmed they are laying off 4, 300 miners.
Chile-owned Codelco,the world’s top copper producer, cut almost 3,900 jobs, including contractors
Governments should expect that there is going to be a long road ahead, full of layoffs and job eliminations.