In a matter of weeks, as much as 600,000 tonnes of planned global copper production has gone up in smoke, making the original speculation that there will continue to be a surplus of copper in 2024 seem outdated now...
The next few years were supposed to be a period of ample copper supply, according to industry figures, thanks to the start of a series of big new mining projects around the world. Most in the industry had expected the supply side to be modest until the market tightens again later this decade, when surging demand for electric vehicles and renewable energy infrastructure collides with a dearth of new mines.
But the mining industry's woes highlight the fragility of copper supplies, whether because of political and social opposition, the difficulty of developing new businesses or simply the daily challenge of getting ore out of the deep ground.
In the past two weeks, one of the world's largest copper mines has been ordered to close following a public outcry, while a series of operational setbacks have forced a leading copper miner to cut its production forecast.
Analysts said the sudden and cumulative "disappearance" of about 600,000 tonnes of expected supply would shift the market from a large surplus to a balanced one, even if demand outstripped supply as early as next year. It's also a big warning about the energy transition ahead: Copper is the base metal needed to decarbonize the global economy, which means mining companies will play a key role in facilitating the shift to green energy.
While copper's response to supply disruptions has so far been muted due to concerns about the property sector, any future signs of a recovery in demand would hit an increasingly tight market.
How did 600,000 tonnes of copper 'disappear'?
Last week, the Panamanian government formally ordered First Quantum Mining Ltd. to end all operations at its $10 billion copper mine in the country. The order came after weeks of protests and political wrangling that ended when the country's Supreme Court invalidated a decree supporting its mining licenses.
In late October, the Panamanian government renewed a 20-year mining concession with First Quantum Mining for the giant copper mine CobrePanama, in return for $375 million a year in revenue, sparking mass protests. Cobre is one of the largest copper mines in the world, producing about 400,000 tons of copper per year.
And just as the market was digesting the imminent closure of one of the world's largest copper mines, Anglo American made a surprise announcement on Friday that it would cut production at its flagship South American copper operations.
While problems at the company's platinum and iron mines in South Africa had been well known, the mine cut caught many investors off guard and sent Anglo's shares tumbling 19 per cent. Anglo American is understood to have cut its copper production target for next year by about 200,000 tonnes - essentially the equivalent of removing a large copper mine from global supply. By 2025, production is expected to decline further.
Will there be a shortage of copper next year?
As to whether copper supply in the global market can meet demand, BMO Capital Markets, which had earlier predicted a large surplus of refined copper next year, now sees a small shortage.
Goldman Sachs is even more pessimistic, having already forecast a shortage of refined copper in 2024, and now expects the shortfall to swell to more than 500,000 tons. In addition, Jefferies is now also predicting severe shortages next year.
"The reduced supply reinforces our view that the copper market is entering a more defined period of tightening," said Goldman Sachs analyst Nichols Nowdon and others.
It is worth mentioning that for most of this year, the expectation that the market will ease in the short term has put pressure on copper prices, resulting in long-term sideways volatility. In early October, the international copper study group (InternationalCopperStudyGroup) had excess copper supply next year is expected to 467000 tons, this is the biggest since 2014 surplus forecast.
Physical copper stocks on the London Metal Exchange surged to two-year highs in the middle of the year, but have now fallen for three weeks in a row, inventory data show.
Jefferies noted that "disruptions have increased significantly and the market is increasingly likely to experience a supply shortage." We may be at the foot of the next copper cycle."
