Is a copper price rise on the horizon? "ASX copper plays" Thursday, April 24, 2014 by Proactive Investors
Australia's biggest trading partner, China, is the world's top user of refined copper. Australia's biggest trading partner, China, is the world's top user of refined copper. While the copper price may have been on a downward trend in recent years, there are some key catalysts in the short to medium, as well as longer term, that could re-rate the metal higher.
Currently copper fetches around US$3 a pound, down 50% from the giddying heights three years ago, but well above the US$2 a pound five years ago.
The key price driver is the quality, and quantity, of potential new supply, supported by demand.
First to demand.
Existing mines producing copper are forecast to decline in the next three years, but this will be supported by firm projects coming online, according to CRU.
The problem is this current production, firm production and even the third level of probable production, is set to fall below forecast demand from 2015.
Any hiccup or time delays in the firm or probable projects, could potentially further increase the supply shortage - and be a catalyst for the metals gain in price if demand remains steady.
Not to be forgotten - Australia's biggest trading partner, China, is the world's top user of refined copper.
This highlights the opportunity for "ASX copper plays" to tap this void.
Quality of potential new supply
Finding and mining high grade copper deposits is becoming harder, with the head grade treated falling for almost each of the past ten years, and forecast to continue falling, according to Wood MacKenzie, Rio Tinto.
There is an increasing deposit depth, with the majority of major discoveries over the past decade and a half considered 'Blind', compared to all the major discoveries in the 1980's being exposed.
There is also increasing country and infrastructure risks with close to two-thirds of copper supply to come from 'Medium risk' and Higher risk' countries in 2014.
Copper production
In 2013 global copper production pushed towards 18 million tonnes, with close to a third of this coming from Chile.
China is the second biggest producer with 1.65 million tonnes, followed by Peru with 1.3 million tonnes and the Unitied States with 1.2 million tonnes.
Australia ranks fifth at just under 1 million tonnes.
Other notable producers include Russia (930,000 tonnes), Democratic Republic of Congo (900,000 tonnes), Zambia (830,000 tonnes), Canada (630,000 tonnes), Mexico (480,000 tonnes) Kazakhstan (440,000 tonnes) and Poland (430,000 tonnes).
"ASX copper plays"
The ASX’s lowest cost and fourth largest copper producer (behind OZL, PNA and SFR) Tiger Resources (ASX: TGS) is due to increase production from its Kipoi Copper Project in the current quarter.
Its Stage 2 solvent extraction electro-winning (SXEW) operation is due to start producing copper cathode in the current quarter. About 12,000 tonnes of copper cathode is expected to be produced in the 2014 calendar year.
Tiger has also recently upgraded Kipoi Central Stage 2 Ore Reserves by 191,000 tonnes to 696,000 tonnes of copper despite mine depletion.
TGS Price at posting:
35.0¢ Sentiment: Buy Disclosure: Held
