Antofagasta (ANTO) is top dog among the blue chips this morning, its shares extending this week’s breakout to trade levels last seen in March 2014. This takes it a step  closer to the major hurdle of 6yr falling highs around 950p.

Today’s gains come in the wake of a Q4 production report showing Copper output just shy of the lower end of guidance, but thankfully on lower costs. Producing less is not normally good news, but it’s fine when you can produce it for less and sell it for more.

And copper prices (barometer of economic growth) are extending their 11% 2017 bounce towards the $6000 ceiling of a 2-month pause which, if overcome, could extend the current 3-month reversal rally from late October (+25%) all the way back to 2015 highs of $6400/tonne (upside of 6.6% from here).

There are a host of drivers for the red metal’s strength of late, including;

1. Expectations of a pay dispute at peer miner BHP Billiton’s (BLT) Escondida copper mine (5% global output) have pushed it to cut FY 2017 output guidance due to the dispute potentially being replicated elsewhere in Chile, disrupting up to 14% of global output. This compounds prior problems related to power outages in Australia and similar strikes at peer mines in Africa. All of which have contributed to rally the copper price form its lows.

2. China 2016 Copper imports were just shy of 2015’s record, thanks to both construction and infrastructure spending, suggesting demand remains strong. And it is the biggest copper consumer in the world, importing 50% of all global output.

3. Trump has already started enacting spending plans, reviving the Keystone pipeline and looking set to discuss the Mexican wall today. This adds to existing optimism in the so-called reflation trade that has helped the mining sector shine. If Trump’s plans work, a stronger America would undoubtedly also require more copper via consumption of more electronic goods.

Assuming global demand at least holds up (it could increase thanks to Trump), tighter supply represents a near-term upside risk for the red metal and a boon for miners like ANTO which remain in recovery mode after a tough few years.

Mike van Dulken, Head of Research, 25 Jan