Big Idea:

As the world transitions to renewable energy and EVs, copper has emerged as a key component of technological innovation and sustainability.

Why It Matters:

The global copper industry faces a tumultuous landscape marked by significant supply disruptions in major producing countries like Peru and Panama, juxtaposed against a backdrop of soaring demand, particularly from China.

Details:

Protests in Peru, following the ousting of President Pedro Castillo, and legal challenges in Panama have significantly disrupted copper production. A strike at Peru's Las Bambas mine and Panama’s top court ruling against First Quantum Minerals' operation of the Cobre Panama mine have together resulted in a loss of nearly 600,000 tonnes of copper production.

State of Play:

Contrary to expectations of a slowdown, China's copper consumption reached a record 27.54 million tons in 2023, driven by military, national security demands, and a recovering property sector. Anticipated financial injections are expected to further boost demand, challenging the consensus view of a weakening market.

Yes, But: 

The shutdown of key mines and reduced ore quality in Chile have led to a tight copper market, with current prices deemed too low to incentivize new mining projects. Forecasts suggest the price needs to reach $15,000 per tonne to address future deficits and encourage greenfield projects, significantly higher than the current price of approximately $8,200 per tonne.

The Intrigue:

The Li Keqiang index, reflecting more volatile economic growth in China than official GDP figures suggest, shows a strong correlation with copper prices. Goldman Sachs predicts a significant copper deficit in 2024, exacerbated by mining disruptions, and warns of a tight market entering a period of clearer tightening.

What’s Next:

Copper's critical role in the global green economy is underscored by its inclusion in the US Department of Energy's critical materials list. With demand likely to double by 2035 for net-zero emissions targets, shortages could impede global growth, increase manufacturing costs, and jeopardize climate goals. The industry faces challenges in meeting demand due to supply constraints, underinvestment, and ongoing demand from China.