The Federal Reserve issued its July interest rate decision. The FOMC voted unanimously to keep the target range for the federal funds rate unchanged at 0-0.25%, the interest rate on excess reserves (IOER) unchanged at 0.15% and the discount rate unchanged at 0.25% as expected. In our view, under the circumstances of the slowing of the U.S. economic recovery and the spread of the global Delta mutation virus, the decline in the long-end of the DOLLAR interest rate, along with the high U.S. inflation, the decline in the short-term real interest rate of the DOLLAR and the decline in the high dollar index will stimulate the short-term copper price to rise.
The risk of strike increases, but does not affect the momentum of supply recovery
The risk of a strike by workers at The Escondida mine has risen after the union said in a statement on July 31 that 2,164 of its members, or 99.5 percent of those who voted, chose to reject a final contract offer from BHP billiton on wage demands. At one point in the first quarter of 2017, a strike at Escondida, a copper mine in which BHP owns a 57.5 per cent stake, led to a 61.4 per cent year-on-year drop in output. The picture
However, we believe that the copper strike will have little impact on the trend of copper supply recovery. On the one hand, copper prices surged in the first quarter of 2017 and fell as other copper mines increased production, with global copper production actually falling by only 2.8% in the first quarter of 2017. On the other hand, copper projects that were delayed in 2020 are expected to come on stream in 2021 and 2020 as copper prices rise. At present, global copper supply is significantly increasing, as of July 30, China imported 25% copper concentrate spot processing fees rose to $52 - $57 / ton.
In general, we believe that in a stagflation environment, copper consumption is likely to fall, but because China and the United States are not anxious to tighten the currency, the investment demand brought by easy liquidity will not soon ebb, so that the copper price in the short term will show high oscillation, up and down the dilemma. The strike risk at copper mines is only a short-term disturbance and the resumption of copper supply growth will not be reversed.
