Bullish Signs Emerge for Copper as Supply Tightens and Demand Holds Strong

Recording date: 17th November 2023

The Battery Show (Copper Bottomed, Episode 6)

Copper has long been considered a bellwether for the global economy, yet prices have held up remarkably well lately despite economic headwinds. This resilience is signaling strengthening fundamentals poised to drive copper higher. Supply constraints are mounting while demand continues to expand, tightening the market more rapidly than expected.

Most impactful was Ivanhoe Mines’ mega discovery in the Democratic Republic of Congo of over 16 million tons of 3.55% copper along with 154 million tons at 1.89% copper. This remarkable grade is nearly 7 times the global average, with over 3 million tons of contained copper. Once infrastructure is established, this could be a generational low-cost, high-margin mine.

Alarm bells are ringing on the supply side as smelters struggle to source enough copper concentrate. Trafigura is now having to help Chinese smelters obtain sufficient imports to meet blistering demand. With mines already operating full tilt, this sets the stage for the type of demand-driven copper bull markets of the past.

Meanwhile, Cobre Panama, one of the world’s largest new copper mines, is experiencing severe production issues. Output is being throttled back as protests block port shipments. Many experts believe its mining license will be revoked, potentially removing 300,000 tons of supply next year. This would substantially reduce the forecast 460,000 tonne market surplus in 2023.

The demand backdrop remains positive for copper as well. Commitments were renewed at COP27 to triple renewable energy capacity by 2030. This will necessitate a tremendous amount of copper, as renewable systems require 4-5 times more copper per megawatt than conventional energy.

While inflation is easing a bit, governments are still spending heavily on infrastructure and stimulus programs. Manufacturing and construction activity in top consumer China have also picked up. With the electrification of transport gathering pace, copper demand looks resilient despite economic hurdles.

The takeaway is clear - new supply is not coming online fast enough while demand continues expanding. Copper prices need to rise considerably to incentivize the huge investments required for new mines. Juniors offer upside potential, but extensive due diligence is mandatory given the risks.

With global decarbonization accelerating, copper will become increasingly scarce. Its essential role in renewable energy makes it poised to be one of the best performing commodities of the coming decade. Investors seeking commodities exposure should have copper at the top of their list. The warning signs of a major supply shortfall are already flashing bright red.

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