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Copper Resumes Gains as Supply Risks, China Demand Buoy Outlook

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(Bloomberg) -- Copper rebounded after its first weekly loss in six, lifted by concerns of supply disruptions in Chile and signs that Chinese demand is picking up.

Workers at BHP Group’s remote operations center in Santiago rejected the company’s final wage offer, with almost 97% of the union’s members opting to strike. Under Chilean labor rules, BHP now has the right to call for five days of government mediation. Meanwhile, demand in top user China is recovering after prices retreated, Jinrui Futures Co. said in a note on Monday, pointing to a spike in the domestic spot premium.

Bets on tight supplies and rising use have fueled a year-long rally in copper, which touched an all-time high last week before gains ebbed. The risk of a strike poses an added threat to output from the top copper-mining country, which is already faces a potential giant tax hike. A proposal to tax Chilean copper sales at rates of as high as 75% is rippling all the way to Peru, where the leading presidential candidate wants to impose a similar measure.

“LME metals have started the new week on a firmer footing amid a slew of news stories,” Ed Meir, an analyst at ED&F Man Capital Markets, said in a note.“We are watching copper in particular as on Friday, we learned that a union representing workers at BHP’s Escondida and Spence mines rejected an offer on a future contract, raising the risk of a strike at these sizable facilities.”

Copper’s rally stumbled last week along with other industrial materials after China stepped up efforts to cool the commodities surge that’s fanning fears of global inflation. Industrial output data from the China on Monday showed aluminum and steel production notching records in April, even as the broader economy moderated.

Brokerage Marex estimated that net speculative bullish bets in copper on the London Metal Exchange have risen week-on-week to 45% of open interest as of Thursday last week, not far from the 62% of open interest seen on Feb. 25, which was the highest going back to 2004 based on its estimates.

Copper added 1.3% to settle at $10,373 a metric ton by 5:53 p.m. on the London Metal Exchange. The metal hit $10,747.50 on May 10. Other metals also advanced, with zinc up 2.6% and nickel climbing 2.1%.

Morgan Stanley said the gains in metals, iron ore and grains will decline toward the end of the year after “overshooting levels that can be justified by the fundamentals,” though the turning point is hard to gauge.

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