mining review

What’s slowing down the world’s copper production?

Global phenomenon and innovations are keeping the copper industry afloat amid the international crisis, particularly with the rising demand for electric vehicles, limited copper production, and low inventories. The industry remains positive that the dynamics in the market will continue in the coming periods as more economies reopen, especially its largest partner China.
Copper production

Highlights

  • Analysts see the Copper price breaking an all-time high in 2022
  • The demand for copper is expected to rise further amid rising concerns about its low global inventory 
  • Mining companies are urged to expand their production capacity to counter supply shortage

Copper has remained relatively static based on a year-on-year comparison, even as a tighter supply for the commodity boded ill for its market. The copper price is at a current level (April 2022) of $10161.38/mt, down from $10230.89 last March. This translates to a -0.68% deficit from last month. Taking into account the copper price chart in a year’s period, 2022 April’s report is up by 8.97% or $9324.82 one year ago. 

Copper price

With an ongoing deficit in supply, some analysts bet that copper price would still rise from its all-time high of $10,512 per metric ton on May 9, 2021.

Goldman’s Jeff Curie, global head of commodities research, forecasted in March 2022 that a substantial rise in copper price could be seen amid a massive deficit in supply. 

“What’s happening today is that we have a relatively weak property market,” Curie said on Bloomberg. “The inventories are low, the capacity to produce is limited, the demand elasticity to create that demand destruction are very low.”

US-based Goldman Sachs predicted copper to reach $12,250/mt in the fourth quarter, brought about by inventory depletion. The firm also noted a 50% steady rise in copper price or up to $15,000/mt in the next three years.

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According to Reuters, cash copper contracts on the London Metal Exchange are expected to average $9,000 per metric ton in 2022. Base case average prices remained for 2Q this year at US$10,000/t. Price forecasts are also unchanged for 3Q hovering at US$9,900/t and 4Q at US$9,800/t (LME 3M quarterly average).

Weakened demand for copper in the global market is currently attributed to various crises, including China’s “zero COVID policy”.

China accounts for more than half of the global consumption of copper due to its massive urbanization and its strong economic growth amid the pandemic. It produces about half of the global refined copper and is the world’s largest importer of metal. However, China’s zero-covid policy has taken a toll on the market, restricting the usual turn of operations in the manufacturing sector in major cities including Shanghai. Robust operations are expected to resume once the country has its health crisis under control. 

“The ongoing lockdowns will make it more challenging for China to meet its 5.5% economic growth target for 2022, especially since the current quarter appears likely to be weak, with some economists saying a negative gross domestic product number is a possibility,” Reuters columnist Clyde Russell wrote.

Copper price

As the Russia-Ukraine conflict continues, the metals industry is facing larger challenges to maintain balance. The production and distribution of copper are not spared. Prices sharply rose brought by weakening demand and supply chain issues. This regional crisis has spilled its consequences worldwide, directly hitting consumer confidence.

While the market seems to be more concerned with the demand, there are also challenges that need to be addressed in the supply chain. This is conjugal to the overall market system of the commodity.

The world’s top 5 leading copper producers are Chile, Peru, China, the Democratic Republic of the Congo, and the USA.

Chile

An estimate of at least 5.6 million metric tons of Chile’s copper mine production was recorded in 2021, translating to about 27% of the global copper production and thereby reaffirming the country as the largest producer of the commodity for more than 30 years now. Its copper production dropped by 1.9% in 2021. Its mining sector keeps its conservative forecast between 2-3% growth for 2022. 

In this quest for further development in the sector, it should also be taken into account the Chilean government’s push for new royalty on mining, placing an increased burden on miners and would potentially be less favorable to the appetite of some investors.

Peru

Peru, the world’s second-largest producer of copper, recorded a 6.9% increase or 2.4 million tons in 2021, despite ongoing conflict in the sector. April this year, major mining companies Las Bambas and Cuajone were forced to halt operations due to the said tension from villagers, disrupting mining operations and directly taking a blow on global copper supplies.

Politics remain at play for the conflict going on in Peru, especially with the controversial bill lowering government compliance standards to stimulate more investments in the country’s mining industry. Peruvians fear for the potential threat to the environment regarding such a policy.

China

In 2021, China produced an estimated 1.8 million metric tons of copper while refined copper output rose to 7.4%, totaling to 10.49 million mt in the same year. Although its copper mine and refined copper production capacity was estimated to increase in 2022, China’s COVID-19 situation remains a threat to its economic activities.

Democratic Republic of the Congo

DRC is Africa’s largest copper producer. It produced an estimated 1.8 million metric tons of base metal copper in 2021. DRC-based Canadian Ivanhoe Mines has committed last year to produce the industry’s “greenest” copper, as it embarks efforts to be the first net-zero operational carbon emitter among copper producing nations. It is yet to release its first production in June this year.

Mining expansion?

Experts say that copper will have a significant role in the transition to renewable energy in the future in line with its environmental goals.

Karl Simich, chief executive officer at Australia’s Sandfire Resources, noted exploration ventures as an initial step to support such effort and likewise address concerns in the global supply of copper.

He said that they are more concerned with the long-term prognosis of demand and supply for copper rather than focusing on the short-term slump. “Whilst we would always observe what’s happening in the short term, we’re planning for the long term,” he said. “For us to make a world that’s greener, cleaner – a world that we want to live in – we would need to extract more minerals and energy to be able to do that.”

Simich stressed that Australia has a huge potential in mineral endowment, however, the stakeholders are underspending in terms of exploration and development, which is the primary venture for expansion.

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