In the latest example of the challenges facing the supply side of the metals market, state-owned Codelco in Chile, the world's largest copper producer, reported a 9.3 per cent fall in second-quarter copper production from a year earlier, Bloomberg reported.
Results from Codelco, Chile's state-owned copper company, reflect disappointing copper production in the country this year. Chile accounts for about a quarter of global copper supply and Codelco is the world's largest copper supplier.
On the same day, Chile's national copper council, Cochilco, said it had been hit by a decline in ore grades, water restrictions and protests by trade unions. Chilean copper production will be 3.4% lower than last year.
Copper mines around the world are grappling with the challenges posed by the pandemic at a time when production costs are rising but copper prices are falling.
Codelco produced 371,000 tonnes of copper in the second quarter, down from 409,000 tonnes a year earlier. The company's revenue also fell as recession fears triggered a slump in commodity prices.
Chile's copper council says it expects copper prices to recover in the second half of the year as concerns about global inflation abate. But there are plenty of risks ahead, such as the global economy slowing more than expected and consumer prices rising faster than expected, leading to further tightening of monetary policy.
This is despite expectations of a small surplus in the copper market due to weaker demand and increased supply from the Democratic Republic of the Congo (DRC). But in the longer term, the long-term outlook for the copper market remains positive, given the surge in demand for battery metals as a result of the global push for clean energy.
The lack of supply may curb the weakness in consumption as the economy slows. Although Chile has the largest copper reserves, ore grades have been steadily declining, meaning mines need to extract more ore to produce the metal, pushing up production costs.
In June, Codelco faced stoppage protests from miners after it revealed plans to close a smelter over pollution concerns. In early July, the company temporarily halted program operations to review safety procedures after two fatal accidents.
Codelco also recently approved a plan to revive a $1 billion desalination project in northern Chile as part of its goal to reduce water consumption on the mainland by 60%.
