(Kitco News) - Copper prices surged Wednesday after Freeport-McMoRan declared force majeure at its giant Grasberg mine in Indonesia, a move that rips a significant source of supply out of a market already on edge. The disruption sent copper prices up more than 3.5%, with the LME spot price pushing above $10,300 a ton.
The supply shock in the industrial metals complex comes as precious metals also signal significant physical tightness. Platinum, the year's top-performing major commodity with a year-to-date gain of nearly 70%, continues to see a steep backwardation in its futures market, a clear sign of a supply-demand imbalance. Platinum was last trading around $1,510 an ounce.
In an in-depth interview with Kitco News, Ole Hansen, Head of Commodity Strategy at Saxo Bank, broke down the developing situation, stating that for commodities in general, "we are still at the cusp of a super cycle".
Copper Market Faces Supply Crisis
The force majeure at Grasberg, the world's second-largest copper mine, is compounded by a simultaneous shutdown at Hudbay's Constancia mine in Peru and ongoing struggles at a Codelco mine in Chile. "Basically we have the two biggest mining operations in the world... temporarily... shutting production," Hansen said. "And that is simply not what the market... can take, at this point in time".
According to Hansen, this triggered a technical breakout on the London Metal Exchange above the key $10,160 level. While he noted that a recent visible surplus in exchange inventories had been a headwind, the supply news was the dominant factor. The demand for copper has fundamentally shifted in recent years, with consumption from renewable energy projects and global electrification "picking up the slack" from a weaker Chinese housing sector, Hansen explained.
Gold Correction "Healthy," Silver Targets $50
In the precious metals complex, gold and silver continue to consolidate after a powerful year. Gold, with a year-to-date gain of approximately 42%, was trading around $3,780 an ounce. Hansen sees the recent pause as healthy and suggests a correction down to the $3,600 level is possible "without really hurting the overall bull setup." He believes large institutional players are still "certainly" underweight the yellow metal.
Silver, trading near $44 an ounce for a year-to-date gain of around 50%, remains a key focus. Hansen is particularly bullish, stating that if one is bullish on gold, "you have to talk about $50 in silver." He revealed he likes silver "even a bit more than gold" due to its potential to run faster, a view supported by what he described as a multi-year global supply deficit and strong industrial demand.
The "Energy Transition Supercycle"
Tying these themes together, Hansen stated that the global market is at a pivotal moment. "The long term trend for commodities in general, I think we are... at the cusp of a super cycle," he said. He calls it the "energy transition super cycle," driven by massive, inflationary investment required for electrification and the re-industrialization of the U.S. "That all points, in my book, to higher prices," Hansen concluded.
For Ole Hansen's in-depth analysis on the commodity supercycle, the risks in the market, and his outlook for gold, silver, and copper, watch the full interview here.