Interesting commentary from mining analysts in the UK. Copper...

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.