Interesting commentary from mining analysts in the UK.
Copper prices push past two-year highs as Codelco struggles to ramp up production
LME prices hit $10,215/t yesterday, before easing somewhat to $10,115/t today.
The move was supported by more positive Chinese factory data, having climbed 15% in April on a concentrate squeeze.
Rock bottom TC/RC fees have fuelled speculation of production cuts from China’s smelter groups, which produce over 50% of global refined copper.
Concentrate availability has been thin owing to Cobre coming offline and production hits from Anglo American and MMG.
Positivity is coming from China’s property sector, with developer equities climbing yesterday on rumours of easing home purchase restrictions in major cities.
However, fabricators, a major downstream source of demand, are reporting thin margins, suggesting fundamentals still remain weak for Chinese copper buyers.
This is reflected in weak Yangshan premiums, which hit zero last week as import demand remains stagnant.
A PWC report suggests 54% of copper output is exposed to climate change-driven drought.
Chile and Zambia have both recently suffered from water shortages, which weigh on processing plants and hydroelectric power availability.
Codelco announced yesterday it is looking forward to a recovery in production, expecting a rise in production into H2 following a Q1 decline.
Conversely, sliding inventories suggesting restocking has picked up as downstream users look to lock in supply as prices continue to rally.
Copper demand is currently made up of:
Construction 28%, Power 16%, Consumer goods 13%, Transport 13%, Industrial equipment 12%, HVAC ‘Heating Ventillation and Air conditioning’ 7.5% and Other 10%
New demand drivers:
AI Artificial Intelligence – use of energy requires bigger copper cables
Datacentres for Gig economy continue to expand and to multiply 1GW = 25-50,000t est. of copper in cabling in total
US may add 8GW in 2024, 12GW in 2025 and 16GW in 2026 after 3GW in 2023 according to GS.
EVs – require Over two times as much copper 53.2kg vs 22.3kg according to the IEA
EV chargers – a 200 kW charger uses 8kg of copper. Smaller 3.3kW charger uses 0.7kg of copper (ICA)
Electric busses use 129-292kg of copper in their batteries representing 85% of the total vehicle content (ICA)
Solar, wind, hydropower, nuclear power cabling
Solar uses 2,450-6,985kg /MW of power generation (cuspuk)
Hydropower 4,000 kg / MW
Wind power, onshore 2,500 – 6,400 kg / MW
Wind power, offshore 10,500 kg / MW
Grid cabling – high tension overhead cables are made of aluminium, buried cables are almost always copper.
China state stimulating the finishing of apartments. This should drive copper demand for domestic cabling and appliances
China state also looking to stimulate demand for consumer goods. Again driving demand for a range of metals.
Supply side disruption:
Shortage of concentrates:
Cobre Panama – shut down indefinitely
Grasberg – export license runs out in May. Freeport’s new Indonesian smelter currently expected to commission by the year-end
Copper concentrate Tc/Rcs have been seen at negative levels for the first time in our recollection.
Shortage of new mines: There are no new large copper mines in development
Existing giant copper mines struggling
Increased risk of slope failure
Falling grades
Capacity being stretched as mines strain under the pressure to produce more copper.
Zambia, drought, and lack of hydropower may curtail copper production in Zambia and DRC
Peru – Las Bambas communities likely to disrupt supplies further on unapproved expansion of copper mine
Chile – suffering lack of investment at Codelco and elsewhere due to government threats to raise taxes
Other influences:
Investors are generally long with many now focussed on copper as a longer-term investment on substantial expansion in demand
China SRB ‘State Reserve Bureau’ may have dumped metal into Shanghai warehouses to suppress prices and to fulfil local demand
Contango levels are easing in copper spreads, although remain in deep negative territory suggesting that spot demand is not as strong as current prices would suggest.
We suspect a major driving force in copper’s recent move has been macro-economic speculators and momentum-driven CTA funds, with positioning extended on most major exchanges.
Conclusion: While it is possible 3-month copper may dip below $10,000/t longer-term fundamentals appear to indicate markedly higher prices and the market can smell the blood of a number of short sellers.
AIS Price at posting:
25.5¢ Sentiment: Hold Disclosure: Held
(20min delay)