Category: Forex News, News

Copper price surge continues as analysts forecast steep rise amid supply crunch

Copper prices have topped US$10,000 per tonne for the second time in a fortnight but analysts including Goldman Sachs are predicting that there’s still a long way to go.

Goldman’s latest forecast is for the red metal to reach US$12,000/t by the end of 2024 and then US$15,000/t in 2025.

The last time copper went into five figures was in March 2022, when the Russian attack on Ukraine began and there were fears of supply disruption.

The metal topped out at US$10,845/t at that time.

Back then, the force behind copper’s price was geopolitical risk; this time it is the looming and widening supply-demand deficits that have caught traders’ attention and led Goldman to predict “demand rationing” because demand is in runaway mode, but few new mines are in offing.

Copper supplies stall

In its most recent client note, Goldmans says copper demand has “scarcely gathered momentum”.

It sees a deficit of 454,000t this year and 467,000t in 2025.

Copper, essential for electricity and everything that depends on electricity because of its conductivity powers, is the building block of economic growth.

Yet — while the world hurtles to an electric future and Net Zero 2050 — mine output has failed to keep pace.

Between 2019 and 2023, global mining output has been struck in the 20 to 22Mt range.

Predictions for demand over the next 10 to 20 years vary but they all have one thing in common: they are much, much higher than today’s output.

Mines in trouble

The International Copper Association forecasts that by 2040 the world will be consuming 40.9Mt of copper per annum.

The World Bureau of Metal Statistics sees a 2030 global deficit of 6Mtpa — equivalent to 27% of 2023’s global mine output of copper.

Last year the Panamanian government forced the closure of the Cobre copper mine, owned by First Quantum Minerals, after protests about the mine causing environmental damage.

That took 400,000tpa out of production, representing 1.8% of global supply.

There is now a glimmer of hope after last weekend’s elections in Panama, with incoming president Jose Raul Mulino noted for being pro-business and pro-mining.

But a mine re-opening would require Panama’s Congress to agree and last year that body voted heavily for the closure.

Ecuador licence suspended

Meanwhile, a court in Quito last week suspended the environmental licence for the US$3 billion Llurimagua copper-molybdenum mine located just 75 kilometres north-west of the Ecuadorian capital.

The planned mine is located in a tropical rainforest area and mining has been opposed by the local people.

The published resource for one deposit within Llurimagua is 982Mt at 0.89% copper.

Chile’s Codelco, along with the Ecuador’s state mining company, were to develop the operation.

Elsewhere in South America, Anglo-American has slashed output forecasts for 2025 from its two copper mines in Chile by 200,000t.

South American disruptions

Declining grades, along with labour disruptions, are hampering South American copper output.

Chile and Peru are the world’s top copper producing countries.

They are followed by the Democratic Republic of Congo and China — and China has established a significant presence in the DRC’s copper mining sector.

DRC’s copper output has reached 3Mtpa, most of which is shipped to China.

Meanwhile China Minmetals last year paid US$1.87 billion to buy the Khoemacau copper mine in Botswana’s Kalahari copper belt from its Canadian owner, putting its foot on annual outputs of 60,000t of copper and 1.67 million ounces of silver.

Electrification plans under threat

Without sufficient copper supplies, a clean energy future is threatened.

Not only does the outlook seem bleak for copper supplies, but the very process of electrification has implications for copper.

According to Frank Holmes, chief executive officer of San Antonio-based fund US Global Investors, total world spending on energy transition in 2023 came in at US$1.8 trillion, double that for 2020 outlays.

Vice chair (energy) for Wood Mackenzie Ed Crooks says construction of a wind farm uses three times as much copper per gigawatt than does the construction of a coal-fired plant.

An upper-end elective vehicle typically requires 78kg of copper compared with a large petrol-driven sedan using 22kg.

Copper investment lag

It takes, on average, at least 10 years from prospecting for copper to first production.

Buying the copper producer is much easier — hence BHP Group (ASX: BHP) is seeking to buy Anglo American (and presumably sell off much of Anglo’s non-copper inventory) — but the number of pure play copper mines is very small.

And there are many hungry buyers: Minmetals managed to buy its Botswana mine only after years of scouting for copper acquisitions.

Tom Stevenson of US-owned investment house Fidelity International says that, between 2012 and 2020 capital, spending in the copper industry fell by more than 40%.

“Copper production, like that of all commodities, is highly cyclical,” he argues.

“To make it worth the cost, the environmental challenges and the long and risky time-scales, the price needs to rise from here.”

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