Can "irrational" BHP Billiton Limited (ASX: BHP) be accused of trying to trigger a crash in the copper price?
The mining giant outlined plans to transform its Olympic Dam mine in South Australia into one of the world's largest copper mines when the price of the commodity suffered its worst fall since the start of the year in overnight trade.
A 90% rise in the stockpiles of the red metal over the past year at warehouses monitored by the London Metal Exchange triggered the sell-off, which saw copper tumble 2.8% to $US2.67 a pound.
Some experts are warning of more pain ahead as supplies are rising at a time when China, the world's biggest consumer of the metal, is slowing.
Goldman Sachs has even gone so far as to call copper one of the most challenged raw materials because of the prospect of a rising US dollar (which will negatively impact on the price) and waning Chinese construction activity.
Against this bearish outlook, BHP Billiton's chief executive Andrew Mackenzie told The Australian that annual copper output from Olympic Dam will rise from the current 180,000 tonnes to 450,000 tonnes in 2024.
The mining giant has been accused of acting irrationally by Fortescue Metals Group Limited (ASX: FMG) as it refused to cut production of iron ore even as the price of the steel making ingredient was in a nosedive on the back of a similarly bleak demand-supply outlook.
We may just hear a familiar finger-wagging against BHP Billiton if copper continues to tumble.
As it is, the one-day drop in the metal is already weighing on our largest pure-play copper producers OZ Minerals Limited (ASX: OZL) and Sandfire Resources NL (ASX: SFR) as their shares tanked around 2% in early trade.
Perhaps shareholders in PanAust Limited (ASX: PNA) may have caught a lucky break when they agreed to sell the company to the miner's largest shareholder Guangdong Rising Assets Management even though the offer of $1.85 a share reflected next to no "takeover premium".
However, you won't find consensus about the outlook for copper with a number of commodities analysts pointing to an expected shortfall of the red metal in two years due to the lack of sufficient new production coming online.
What's more, the Chinese government is already taking steps to stimulate its sagging economy and infrastructure construction is one of the areas that is likely to benefit from the fiscal stimulus.
The move away from fossil fuels to renewables is also a supportive trend for the metal that is heavily used in electric infrastructure.
Confused about what to do? You won't be alone as what all this proves is that the demand and supply outlook for copper is tough to forecast.
I am a believer in the longer-term fundamentals for copper and I believe the best way to play this thematic from a risk-adjusted perspective is to invest in well-run low-cost diversified miners like BHP Billiton.
You just need to be prepared to ride the volatility.
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