DENVER, CO--For most of the past 18 months, copper prices have ho-humly averaged about $3.50/lb, slightly lower than Monday's close of $3.6210/lb. But the long-term fundamentals of the building metal are still as bullish as ever.

Take a look at a 5-year price chart . . .

Despite the major price spike that took place in April 2006, we see a nice upward building baseline. And although the chart above only plots closing prices, spot copper traded as high as $4.0755/lb in mid-May 2006 before falling to $2.4045/lb eight months later in early February 2007 and subsequently recovered to current levels.The recovery from February's lows have come in part from supply disruptions after labor issues with major copper producers.

Truth is, the base metal industry is no stranger to problems with unions. There have already been dozens of labor disputes this year alone. Reuters has a good list which can be seen here: http://today.reuters.com/news/articleinvesting.aspx?view=CN&symbol=XTA.L&storyID=167196+04-Oct-2007+RTRS;&type=qcna

The latest debacle involves Southern Copper Corp., the world's fifth largest copper producer, and a new trade union.

Workers from the company's Toquepala and Cuajone mines and its Ilo smelter have walked off the job and are demanding an 11.5% wage increase. As we've just seen copper prices more than doubled in the past two years and workers want a larger share of the rising profits.

The Toquepala and Cuajone mines produce a total of about 370,000 tons of copper per year while the Ilo smelter churns out 350,000 tons of processed material. Overall, the protests have cut output by about 10% per day in Peru. So this is a significant amount of supply not getting to the market.

The current strike against Southern Copper also comes amid ongoing stoppages from some of the company's Mexican operations. Since July 30th, labor unrest has shut in roughly 30,000 metric tons of production.

All these strikes are happening at a time when the market is having trouble meeting demand. It has been estimated that production this year will fall short of demand by 120,000 before reverting to a surplus of 300,000 tons in 2008.

In the meantime were forced to rely on warehouse stocks, which, at present, are still at multi-year lows.

Although warehouse stocks at the London Metals Exchange have seen some positive in the past few months, inventories have been falling steadily and have dropped roughly 85% in five years. Take a look . . .

Sources at Southern Copper say that the strike may continue at least until Oct. 10, due to holidays that may delay government action to help resolve the conflict. But if the union is successful with their wage talks, I expect that we'll see further strikes against other major producers from workers looking for a bigger piece of the pie.

Meanwhile, the supply/demand fundamentals for the copper and the buying that's been generated as they break higher is causing momentum to be maintained on the upside.

Until next time,

Greg McCoach