The recent price boom in the copper market is expected to sustain amidst wide spread uncertainties in the global red metal trade. The turmoil of China - United States trading relation heat is being well reflected in the upswing of the prices of major base metals. The negative trade signals created by the sanctions against Rusal leading to lower Russian exports is likely to be well compensated by the restarts of U.S. capacity and excess capacity in China. The strong demand from China continues to drive the global copper market. Most of the significant price levels breached since the US election have seemed to coincide with SHFE traders seizing technical signals. In spite of all fingers being pointed at speculators, the higher price environment has made fundamental sense because of the need for an incentive price that can avoid huge supply gaps post 2020. In the current scenario, if something is not done on immediate basis to breach the supply gap, the prices may be poised to soar up to new highs in the coming months.
The global supply reserves available for mining, according to the US Geological Survey (USGS), is 2.1 billion MT with the most common deposit being porphyries, representing 1.8 billion MT. By far the country with the most reserves is Chile, at 170 million MT, while Australia is second at 88 million MT and Peru a close third at 81 million MT. JORC-compliant reserves for Australia though are only about 24 million MT. So, really the top two copper depositories are Chile and Peru. The United States has 45 million MT of reserves, around the same as Mexico. In terms of production, in 2017 Chile produced the most copper, 5.3 million MT, with Peru second at 2.3 million MT and the China third with 1.8 million MT. The US cranked out 1.2 million MT of copper last year. Total mined production was just less than 20 million tonnes in 2017. The top four copper companies produce around two-thirds of the metal, and the 10 biggest firms produced $644 billion worth of copper in 2017 at a price of $3.10 a pound, according to stats from Infomine. The top 10 copper companies are, in order, Codelco, Freeport McMoRan, Glencore, BHP Billiton, Southern Copper, KGHM Polska Miedz, Rio Tinto, First Quantum, Antofagasta and Vale.
The positive news of expansion of copper supplies came from the Chinese quarter, where Chinalco begun a $1.3 billion expansion of its Toromocho mine in Peru, which would raise copper output by 45 per cent to 300000 MT by 2020. On the global front, World mine production is estimated to have increased by around 4.8 per cent in the first two months of 2018, with concentrate production rising by 4.5 per cent and solvent extraction-electro-winning (SX-EW) by 6 per cent. The increase in world mine production, of about 150,000 MT copper, was mainly due to Constrained output in the comparative period of 2017 namely in Chile and Indonesia. Production in Chile, the world’s biggest copper mine producing country, increased by 13.5 per cent mainly because production in February 2017 was constrained by a strike at Escondida (world biggest copper mine). Indonesian output increased by 40 per cent because comparative output in 2017 was negatively affected by a temporary ban on concentrate exports that started in January and ended in April. A 10 per cent increase in SX-EW production in the Democratic Republic of Congo (DRC) and a 16 per cent rise in Zambian mine output due to the restart of temporary closed/reduced capacity. Although no major supply disruptions occurred in this period, overall growth was partially offset by lower output at some mines in Canada (-9 per cent), Mexico (-3.5 per cent), Peru (-2 per cent) and the United States (-9 per cent). On a regional basis, mine production is estimated to have increased by around 11 per cent in Africa, 4 per cent in the Americas, 5 per cent in Asia, 2.5 per cent in Europe and 5 per cent in Oceania. World refined production is estimated to have increased by about 3.3 per cent in the first two months of 2018 with primary production (electrolytic and electro-winning) rising by 3 per cent and secondary production (from scrap) increasing by 4.5 per cent. In tonnage terms, the main contributor to growth in world refined production was China (increase of 3.5 per cent) due to its continued expansion of capacity. Production in Chile was up by 5.2 per cent supported by a 7 per cent increase in electro-winning (SX-EW) production mainly because production in February 2017 was constrained by the strike at Escondida referred to previously. Production in Indonesia and Japan was also substantially higher recovering from constrained output last year that was due to a strike and a maintenance shutdown. Increases in electro-winning (SX-EW) output in the DRC and Zambia also contributed to world refined production growth. However, overall growth was partially offset by declines in refined production in Peru, Poland and in the United States, respectively. On a regional basis, refined output is estimated to have increased in Africa (7 per cent) and Asia (5 per cent) while remaining essentially unchanged in Europe and in the Americas.
On the demand side, copper consumption last year was driven by Chinese growth and expectations of US demand for copper based on statements from President-elect Donald Trump, who promised $1 trillion to help repair America’s crumbling infrastructure. The strong Chinese demand is continuously standing in as the underlying strength. Major push in demand is coming from Beijing-Tianjin-Hebei integration, a $1.5 billion fund that promotes the government’s plan to integrate the economies of Beijing and Tianjin with the surrounding Hebei province and the extensive use of electric cars. China is the leader in the supply of and demand for electric vehicles, overtaking the US in 2016. Six of the 10 biggest EV makers are in China.
The daily movements of the copper price give some idea of short-term global economic fundamentals, since copper is such an important metal for industrial uses. Demand for copper is a good indication of the relative strength of the economy in question. However it takes a higher-level, longer-term view to see what’s really happening in the copper market. And what’s happening is that copper supply is NOT going to be able to keep up with demand in the long-term. Even with expansions at existing mines and the ramp-up of the relatively few new copper mines like Cobre Panama, Radomiro and Toquepalain, it will not be enough to meet the onslaught of demand that is coming from China as it continues to modernize and urbanize, and electric vehicles, which use three times as much copper as regular ones. If the current level of demand (only in China) is to be analysed, the quantum of copper needed is too enormous - If China follows through on its promise to go 100% electric that would mean 2,380 million MT of copper. At the current production rate of 20 million tonnes a year, that’s 119 years’ worth of copper! Just to produce enough copper for electric cars in China. Going by the level of urbanisation and population size, even a mild push towards electric vehicles would lead to significant boost in the demand. Last but not the least, long term investment in copper continues to be a viable option irrespective of the uncertainty prevailing in the near term.
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