Copper and Sulfur
Watch as this duo do the delicate dance....
You have probably read and heard about it by now - there is a shortage of Sulfur in the world thanks to the blockade in the Strait of Hormuz. Copper prices are starting to react as this story gains further traction.
Here is what is NOT being asked.
(1) Why is there Sulfur coming out of the Gulf Region in the Middle East?
(2) What is the relation between Copper and Sulfur?
The short answer to query (1) is, Sulfur is a by-product of oil gas refining especially if the oil or gas is “sour” (ie contains Hydrogen Sulfide- H2S).
The short answer to query (2) is, Sulfur is used to make Sulfuric Acid which is used to “leach” Copper mineralization from big heaps of mined Copper ore at mine sites. The collected leachate is then subjected to the SXEW process (Solvent Extraction Electro Winning). Basically, take an acidic solution containing leached/dissolved Copper, subject it to an electrical current, the Copper comes out of solution and collects at the cathode of an electrolytic cell. The cathodes are sent off to a refinery for further Copper purification.
This photo is a leach pad at Gunnison Copper (TSX: GCU) “Johnson Camp” project near Benson, Arizona.
Around 25% of global Copper production relies on acid leaching and the SXEW process for Copper recovery.
The other 75% of global Copper production involves crushing the mined ore into a fine power and adding it to a tank that contains a chemical solution. The chemical coats the particles of Copper mineralization and causes the particles to float to the surface where they are skimmed off. This process is otherwise called “flotation”. The skimmed-off material is sent away to a Copper refinery for further processing.
The media channels are creating mental images of Copper mines being shuttered due to lack of acid. What must be stressed is that the Gulf region is not the sole source of Sulfur. Here in Canada we refine oil and gas. A goodly amount of it is “sour” and Sulfur is recovered from the refining process as a byproduct.
Consider a Company like Suncor (TSX:SU). It produces 800,000 metric tonnes of Sulfur per year. Other oil and gas producers add to this figure. The Province of Alberta (where the Canadian oil and gas industry is centered) produces 4 million metric tonnes per year. So there are lot more Sulfur makers than just Suncor. In the US, the annual Sulfur production figure is 8 million metric tonnes.
I am quite certain that the Copper mining industry will not be faced with a shutdown and a lack of Sulfuric acid. Canada and the US will ensure that the mining industry is not left twisting in the wind.
That being said, Copper prices are rising out of concern of such a shortage. This is pulling share prices of Copper miners higher as a result.
One Company to look at is Canadian-based Hud Bay Mining (TSX:HBM). Take a look at the daily chart that follows.
HBM is underpinned by an 88-day cycle (Mercury orbital period) and a 58.65-day cycle (Mercury axial spin period). The above chart has been fitted with these cycles.
Bayer’s Rules 10-A and 11-A give us further insight into what to expect. From the price gap around April 6, a Bayer’s Rule 10-A projection lands here and now, today. And today HBM reacted sharply to the sulfuric acid shortage story, rising near 8% to $32.78 (see the green arrow on the chart). Of course part of this sharp reaction was also due to the 88-day cycle having ended a couple days ago.
Price gaps scare me. Price gaps have a tendnecy to want to get back-filled. This means HBM will likely retreat to the $31 level at some point. When, I do not know.
May 18 and May 29 are the next two Bayer dates to watch for. May 14 is another date to watch - it is the midpoint of the current 58.65 day cycle.
Speaking of price back-filling a gap, just bear in mind that if the administration in Washington manages to get the Iranians to the talking table, the Strait could open fully and commodity shortages such as Sulfur could be alleviated. This would send Copper prices down and mining stocks with them. As of here and now, Memos of Understanding are being shuttled back and forth through diplomatic channels. So neither side is willing to climb down from its perch…
Copper futures are underpinned by a 225-day cycle and an 88-day cycle. The price of Copper futures recorded a pivot point recently at the midpoint of the current 88-day cycle.
If Copper is to turn higher and have another run towards $6.50, I will need to see a price bar with a low that is above the high of the low bar (ie the low must be above $6.00 - basis the July futures). That was was the case today (May 6) - within a penny or two. Let's see what tomorrow brings. I am also going to be watching the May 20-22 timeframe. A pair of Bayer’s Rule projections suggest this will be a critical time.
As for HBM shares, this rule (price bar with a low that is above the high of the low bar) was satisfied today. If a definitive deal cannot be made between Washington and Iran, look for higher share prices that could challenge the April highs at $36.
The recent price fade on HBM is a Fibonacci 48.6% retrace of the March - April move higher. I like it when price fades follow Fibonacci. The Slow Stochastic as of here and now is hooking around and pointing to a bullish trend wanting to develop. Movement increments of heliocentric Venus agree with the Bayer’s Rules and tell me that the May 20-22 timeframe will be important.
So… there is a shortage of available Sulfur in the world. The Copper futures market is now starting to think that the Sulfuric acid situation will create shortages of Copper coming from the mining industry. But Canada and the US do make Sulfur as a byproduct of oil and gas refining. The Copper mining industry will not be left sitting high and dry without a supply of Sulfuric acid.
Just remember - there is more risk than usual in the market these days with so much hinging on a deal to re-open the Strait. Follow the price trend. Use technical chart indicators. Be accutely aware of key planetary dates where the trend could reverse.
Know your tolerance for risk and proceed accordingly.