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Copper can withstand trade war as supply concerns grow

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LONDON (Scrap Register): Despite the threat of a growing trade war, one copper-mining chief executive officer said that he is optimistic that shrinking supply will help the base metal weather the current storm.

Industrial metals are being hard hit as the U.S. government escalates its trade war with China. Copper, in particular, is feeling the heat with prices down more than 3% on the day. However, according to Paul West-Sells, president and CEO of Yukon-based Western Copper and Gold, the sell-off is just short-term noise.

“We have to look at why copper went from $2 to $2.50 to $3 a pound so quickly,” said he said in a recent interview with Kitco News. “Certainly you have seen a pickup in demand because of positive global growth, but that didn’t drive copper prices higher. What drove copper prices up 50% was the supply story.”

Copper, one of the best-performing assets in 2018 as prices traded near multi-year highs last month, has fallen sharply after the U.S. government threatened another $200 billion in tariffs on a wide range of products imported from China. Analysts have noted that the escalating trade war threatens global economic growth, which impacts copper demand.

Comex high-grade copper futures have fallen through critical support at $2.90 a pound. September copper futures last traded at $2.745, down 3.31% on the day.

West-Sells said that he doesn’t expect the current market dynamics to change anytime soon as it has been nearly six years since the last copper mine was built.

Looking past short-term geopolitical instability, West-Sells said that the copper market will be in critical need for supply five years from now.

“We are at this point where demand has caught up with supply, but in the next five to 10 years we are going to need 5 million tonnes of additional supply,” he said. “The world desperately will need a new supply.”

West-Sells added that commodity investors need to continue to focus on the bigger picture. While copper prices are down 17% from their recent highs, the market is still up 35% from its 2016 multi-year lows.

Western Copper is moving forward with the development of its Yukon-based Casino project as it continues the permitting process. In a recent company presentation, West-Sells said that the company is about three years away from starting construction and nearly seven years from production.

“We think because of the growing supply deficit this is the perfect time for someone to join us or buy the property,” he said. “I am starting to see interest in copper companies not seen since 2010.”

 

The only significant threat to the copper market would be a 2008-style recession, and West-Sells said he doesn’t see that scenario on the horizon.

“I’m not losing sleep over the copper market just yet,” he said.

Western Copper is considered a world-class copper deposit with a proven reserve of 4.5 billion pounds of copper and 5.4 billion in inferred resources. In precious metals, the property holds almost 8.9 million ounces of gold in proven reserves with another 9 million ounces of inferred resource.

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