Copper’s Weakness Hides Demand – and Deficit – to Come

“Prices
have
gone
down,
but
they’re
still
at
historical
highs,”
he
points
out.
Presently,
the
market
is
going
through
a
period
of
oversupply
that
could
reach
about
450,000
tons
next
year,
or
about
2%
of
total
demand.

“What
has
disappointed
is
demand
out
of
Europe
and
the
US.
But
demand
from
China
is
still
strong,”
says
Jon
Case,
vice-president,
portfolio
manager
and
research
lead
–
equities,
at
CI
Global
Asset
Management.

At
the
end
of
2023,
growth
of
copper
demand
out
of
Europe
should
be
negative
at
-1.75%,
and
from
the
US
at
-1%,
while
in
China,
demand
remains
very
robust
at
4%,
according
to
numbers
presented
by
Jesline
Tang,
editor
of
S&P
Global
Commodity
Insights
at
a
September
Mining
&
Energy
Investment
event
in
Singapore.

Copper
is
no
Longer
a
Strong
an
Economic
Barometer

The
price
of
copper
has
traditionally
been
seen
as
a
leading
indicator
of
the
economy.
According
to
current
signs,
it
would
seem
like
we
heading
toward
something
that
resembles
a
recession.
But
that
is
not
the
case
–
yet.
In
an
August
note,
Bank
of
America’s

commodity
research
team
said
that
copper’s
sensitivity
to
GDP
growth
has
been
declining.

Case
agrees.
“A
lot
has
to
do
with
how
the
world
economy
has
changed,
he
says.
The
US
economy
is
now
70%
related
to
services,
so
copper
tells
us
little
of
what
is
happening
there,
while
China
represents
50%
of
copper
demand.
So
prices
now
have
a
lot
to
do
with
China’s
economy.”

Copper:
the
New
Oil?

The
energy
transition
promises
to
change
the
present
slump
of
copper.

“Everyone’s
bullish
view
is
predicated
on
the
transition,”
Case
observes.
Tang
calls
copper
“the
new
oil
in
the
energy
transition”.

According
to
Tang,
while
demand
growth
in
China
could
slow
to
2.5%
by
2027,
that
relative
softness
should
be
largely
compensated
by
demand
in
the
US
that
could
shoot
up
to
7%.
By
then,
the
world
would
enter
a
chronic
deficit.

The
year
2027
“is
the
year
when
the
market
starts
to
be
very
worried
because
the
deficit
could
snowball
if
supply
does
not
catch
up,
she
says.
This
is
because
we
expect
copper
demand
to
increase
more
than
82%
between
2021
and
2025
in
order
to
meet
the
net-zero
goals
by
2050”.

As
early
as
2035,
S&P
Global

predicts
that
a
chronic
yearly
deficit
of
9.9
million
metric
tons
could
set
in.

“The
severity
of
the
deficit
will
largely
depend
on
the
industry’s
ability
to
expand
capacity
as
energy
transition-related
applications
are
expected
to
boost
overall
copper
demand
to
about
50
million
metric
tons
in
that
time
frame
from
the
current
25
million
metric
tons,”
states
the
report.

S&P
Global
also
putsforw
ard
what
it
calls
a
“high-ambition”
scenario
where
a
deficit
would
still
set
in,
but
at
a
much
more
manageable
1.5
million
metric
tons.
Even
that
would
be
well
above
the
previous
highest
deficit
of
1
million
metric
tons
recorded
in
2014.

Will
Copper
Supply
Increase?

But
such
a
“high
ambition”
seems
quite
unlikely.
Conditions
in
the
copper
industry
simply
do
not
warrant
such
optimism.
Jamie
Keech,
Executive
chairman
of
Vida
Carbon
summed
up
the
situation
at
the
2023
Vancouver
Resource
Investment
Conference.

“The
average
age
of
the
world’s
top
10
mines
is
95
years
old,”
he
said.

“They’re
getting
deeper
every
year,
they’re
getting
lower
grades
every
year
and
they
are
getting
more
expensive
to
mine
every
single
year.
And
most
of
those
are
located
in
Chile
and
Peru,
areas
that
are
increasingly
volatile
from
a
political
and
social
perspective.”

Mills
points
to
the
First
Quantum
Minerals
project
in
Panama
where,
in
the
second
of
three
required
votes,
Panama
lawmakers
have
voted
to
repeal
the
company’s
new
contract
for
one
of
the
most
important
copper
mining
projects
in
the
world.

“If
the
government
votes
against
it,
that
mine
could
go
offline,
which
would
wipe
out
in
one
blow
next
year’s
surplus,”
the
analyst
says.

To
keep
up
with
projected
demand,
the
industry
would
need
to
spend
$16
billion
per
year.

“That
money
doesn’t
exist
in
the
industry,”
Case
states
flatly.
Especially
since
development
prices
are
escalating.
He
gives
the
example
of
Chile
where
major
restrictions
are
being
imposed
on
water
because
of
scarcity.
That
means
that
mining
companies
have
to
invest
in
ocean
water
desalination
plants
and
pull
that
water
300
kilometers
to
the
higher
altitudes
where
mines
stand.
“But
present
prices
of
copper
don’t
allow
it,”
he
says.

Copper
Demand
from
the
Energy
Transition
is
Mild

On
the
other
hand,
demand
could
be
slower
to
materialise
than
predicted.

Demand
coming
from
the
energy
transition
side
“is
still
relatively
mild,
Mills
observes.
The
problem
is
that
electric
vehicles
and
renewables
are
only
rolling
along
because
of
subsidies.
The
median
income
of
EV
owners
is
$110,000,
so
they’re
not
being
bought
by
everyone.
That
needs
to
change
for
EVs
to
roll
out.”

Of
course,
if
the
energy
transition
starts
rolling
along,
demand
will
explode
–
but
copper
availability
will
dampen
it.
However,
Case
believes
that,
notwithstanding
the
energy
transition,
the
dynamics
and
constraints
within
the
copper
industry
itself
will
warrant
higher
prices.

“We
can
paint
a
picture
where
prices
can
go
much
higher,
he
says,
predicated
on
these
mining
supply
trends,
not
even
on
the
transition.”

Because
of
the
ongoing
slump,
copper
prices
“could
still
potentially
go
down,”
Mills
acknowledges.
Nevertheless,
considering
the
long-term
prospects
of
the
metal,
“this
could
be
a
good
moment
to
enter
the
market,”
he
adds.

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