Ahead of the Herd, in summary,Copper Prices Surge on Supply...

Ahead of the Herd, in summary,

Copper Prices Surge on Supply Concerns

Copper prices have hit a 14-month high due to a growing imbalance between supply and demand.

Reasons for the Price Increase:

• Supply disruptions:
  • Mine closures (e.g., Cobre Panama)
  • Labor strikes (e.g., Las Bambas)
  • Declining ore grades (e.g., Chile)
  • Power shortages (e.g., Zambia)
  • Geological events
• Rising demand:
  • Manufacturing sector growth
  • Green energy transition requiring copper for electric vehicles and renewable energy infrastructure.

Analysis of Top 20 Copper Mines:

• AOTH research suggests a significant decline in output from the world's top 20 copper mines, with a roughly 20% reduction in production compared to capacity.
• This shortfall contributes to the global copper deficit.

Future Outlook:

• Benchmark Mineral Intelligence forecasts a 3.5% increase in copper consumption in 2024.
• The US Geological Survey reports only 22 million tonnes of copper mined in 2023, highlighting the potential for a 6 million tonne deficit if supply doesn't grow.
• Further supply disruptions could exacerbate the deficit.
• Greenfields discoveries (new copper deposits) have slowed dramatically, limiting future supply growth.
• Existing high-grade copper reserves are often located deeper underground, making extraction more expensive.
• Offtake agreements lock up a significant portion of future copper supply, particularly for China.

Conclusion:

The copper market faces a potential supply crunch due to declining production and rising demand. The lack of new discoveries and limitations of existing mines suggest this trend could continue. The West holds minimal offtake agreements for future copper production, potentially hindering its access to this critical metal for the green energy transition.