Copper prices took a hit late in the week as labor-related issues and weak U.S. retail sales made headlines. Workers at the Collahuasi mine in Chile voted to end their four-day strike, bringing to a close one of several labor actions that have impacted near-term sentiment. The Collahuasi mine accounts for around 8% of output in the world's largest copper exporter. Four hundred unionized workers at Zambia's Kansanshi mine also called off their three-day strike after agreeing a new pay deal with management.

Copper prices were further hit by key economic data out of the U.S., which showed weaker retail sales in June than analysts had expected. The Commerce Department reported Friday that retail sales fell by 0.9% in June, the biggest drop since August 2005. Demand for autos, furniture and building supplies all plunged. Analysts had predicted that the figure would be unchanged from last month.

Labor unrest headlines and economic reports come and go each week, but the availability of processed copper remains an issue that is expected to underpin the market. In my opinion, the supply/demand fundamental continues to favor "long" positions in copper; LME warehouse stocks fell more than 7,900 tons last week and now stand at their lowest level since early June 2006. Copper supplies have dropped by more than 53% since February.

In my view, the copper market was technically overbought and probably due for a retracement anyway; the strike resolutions and falling retail sales report combined to provide a selling catalyst.  I have been looking for a pullback and this may be the start of a decline that will bring prices back to the $7,400-7,500/mt area. Clients should consider a visit to that range as a buying opportunity...