Great find Tas, thanks for putting the link up on HC.
Below is an analysis of copper by respected mining journo Barry Fitzgerald late last week. In tha analysis Fitzgerald references Goldman Sachs saying it believed copper needed a US$5.90/lb price to incentivise enough copper production to fill the looming supply shortage.
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Fitzgerald:
Here is a reminder of what BHP said about the outlook for copper two weeks after it lobbed its $8.3 billion indicative takeover bid for OZ Minerals in August.
“A ‘take–off’ of demand from copper–intensive easier–to–abate sectors (renewable power generation, the electrification of light duty transport, and the infrastructure that supports them both) is expected to be a key feature of industry dynamics from the second half of the 2020s forward: if not earlier,” BHP said.
“Grade decline, resource depletion, water constraints, the increased depth and complexity of known development options and a scarcity of high–quality future development opportunities are likely to result in the higher prices needed to attract sufficient investment to balance the market.
“Our view is that the price-setting marginal tonne a decade hence will come from either a lower grade brownfield expansion in a lower-risk jurisdiction, or a higher grade greenfield in a higher risk jurisdiction. Neither source of metal is likely to come cheaply.”
The commentary was penned by BHP’s VP of market analysis and economics Huw Mckay. It is something he does with the release of BHP’s financial results and to BHP’s credit, it is unbiased stuff.
What other company would talk up the outlook for copper when it has an $8.3 billion bid out there which the target company has rejected as being opportunistic because the copper price has been under short-term pressure?
Little wonder then that the market supports OZ’s view that the $25 a share bid doesn’t cut it by holding OZ at prices of more than $26 a share. So it is clear BHP will have to increase the offer or walk away.
If it walks, an already thinner BHP – a result of its exit from coal and petroleum - will have less copper under its belt when that 2025 “take-off’’ in demand hits. BHP doesn’t talk about its price expectations.
But others do, including Goldman Sachs, which is on board with the BHP view that a supply shock is on the way, arguing that prices above $US5.90/lb compared with the current $US3.50/lb will be needed to “incentivise” the 8 million tonnes of additional annual production needed by 2030.
From all that, it can be said that while the copper price has been under the pump of late, its longer term outlook has never been better thanks to the biggest thematic of our times – decarbonisation through electrification.
That’s not to say that copper is about to shake-off recession fears from the global attack on inflation anytime soon. But there is the hope that stimulus in China, the world’s biggest consumer of all metals – could turns things around in the back end of the year.
Rio Tinto – which has a $US3.3 billion bid on the table for the minorities in the Canadian-listed vehicle for its Oyu Tolgoi copper mine in Mongolia – reckons that could be the case. Its boss Jakob Stausholm told Bloomberg in recent days that China does not have an inflation problem, making it easier to stimulate the economy.
“We remain convinced that the Chinese have the means and desire to stimulate the economy,” Stausholm said.
So while Chinese demand was not strong in the first of 2022, “more growth will come in the second half’.’ That would be good for copper, and the whole suite of metal commodities.
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