Supply Disruptions

Supply Disruptions Could Send Copper Prices Soaring Again

Investors currently focus on the wrong drivers when it comes to critical metals. That is evident in the recent decline in copper price:

When it comes to copper (and most critical metals), China is the mouth of the world. However, recent economic weakness implies that demand from China will slow. Back in April 2024, as copper prices soared, it was due to a combination of demand from China and the closure of First Quantum’s Cobre Panama mine in Panama.

The closure took a million metric tons per year of copper supply off the market. According to data provider Statista, the world mined just twenty-two million metric tons of copper per year for the past three years. Over that same period, global demand jumped from 23.5 million metric tons in 2020 to more than 25.3 million metric tons in 2023.

That means the long-term supply/demand imbalance remains in place. That’s what makes the current decline in price look like an opportunity.

The recent correction in price comes from a combination of profit taking and a gloomier outlook on Chinese demand. 

China is a “command economy,” where the government drives the priorities. Currently, the Chinese government shifted away from heavy industry and construction. Those sectors consume enormous quantities of copper. However, this hasn’t translated into a reduced demand for copper. 

China’s copper demand exploded in 2023. It surprised analysts by growing 8% from 2022. That increase came from solar power, renewable energy, green technologies, and electric vehicles. 

Copper’s supply remains fragile. According to Reuters, 5% of the world’s copper supply could be in danger right now. 

On Tuesday August 13, the labor union at major minor BHP declared a strike at the giant Escondida copper mine. This single mine produces 5% of the world’s copper. The union shut down the mine for forty-four days in 2017. Two-thirds of the mine’s workers are part of the union. And in Chile, companies cannot replace striking workers. So, a protracted labor dispute could halt production at the mine.

The current decline in the copper price hasn’t priced in this news yet. When it does, you can expect it to move the price higher again. 

Supply, not demand, will drive the copper price for the near future.

For the Good,

The Mangrove Investor Team

Numbers You Need to Know

$250 Million

Estimations from Goldman Sachs’ indicate that a 10-day strike at the Escondida copper mine could impact BHP’s earnings by upwards of $250 million. (Mining.com)

57%

The world’s largest consumer of refined copper in 2023 was China. That year, China accounted for 57 percent of the total global copper consumption volume (Statista)

80%

Copper is considered a barometer for economic health and existing mines and projects under construction will meet only 80% of copper needs by 2030, according to the International Energy Agency (CNBC)

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