17 Sep

Copper Miners Squeezed as Tariffs and Sanctions Disrupt Markets

WRITTEN BY Mark O'Hara FEATURED IN Commodities

Copper miners

Copper miners including Freeport-McMoRan (FCX) and Glencore (GLEN-L) are having a terrible year, as copper prices have lost ~20% year-to-date. Furthermore, while a US subpoena has spooked Glencore investors, uncertainty about Grasberg operations has kept Freeport bulls on the sidelines. Copper miners might not get a reprieve anytime soon.

Copper Miners Squeezed as Tariffs and Sanctions Disrupt Markets

Higher costs

Costs have risen for copper mining companies pretty much across the board. Prices for yellow goods and tires have gone up, pushing up copper miners’ costs. Furthermore, energy prices have risen this year. The looming sanctions on Iran could push up energy prices even further. Rising energy prices are expected to lead to cost-push inflation for copper miners. The only saving grace has been weak emerging market currencies, which have helped miners bring down some of their costs in dollar terms.

Chile, the world’s largest copper miner, is also contemplating raising royalties on copper. According to Reuters, “Chile’s congress is studying a proposal for an additional royalty payment for copper and lithium miners operating in the country to bolster the development of the regions around their deposits.” However, the report also adds, “It is not thought to have the backing of the government or larger opposition parties.”

Copper prices

Meanwhile, while cost-push inflation tends to support copper prices, the story has been different this year. Copper is reeling under the impact of the US-China trade war. And the trade spat only seems to be getting worse, which could put further pressure on copper prices. Lower copper prices impact the earnings of mining companies like Vale (VALE), First Quantum Minerals (FM), and BHP Billiton (BHP). Copper miners might continue to see weakness in the near term amid rising costs and plunging copper prices.

Please read Copper Miners: Tough to Love, Even Tougher to Hate for Freeport’s bullish and bearish drivers.

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