Peru unrest boosts copper
Unrest in Peru strengthens the long-term bull case for copper, says Lex in the Financial Times. Supporters of ousted president Pedro Castillo have blocked roads and attacked mines in the country’s south, forcing Glencore to halt production temporarily at one site last month. While most mines are still running, the disruption endangers an estimated 30% of the country’s copper output, equivalent to about 11% of the world’s mined total.
The situation isn’t much better in neighbouring Chile, Mark Gardner of Maqro Capital tells the Motley Fool. High inflation and unemployment, combined with rising crime, is causing social discontent that could turn against foreign-owned copper mines. Between them Chile and Peru account for 37% of global copper supply. “Copper has all the hallmarks of being the next big price squeeze in the commodity sector.”
Growing demand
Copper has rallied more than 25% since bottoming in July last year, with optimism about Chinese reopening giving it a recent boost. Yet it is still trading 9% below where it was 12 months ago. But higher demand for copper in the energy transition means that major deficits in supply are likely between now and 2030, Robin Griffin of consultants Wood
Mackenzie tells CNBC. “The growth in both… automotive and transmission [demand] is going to be huge”. Sales of electric cars more than doubled in 2021. That will require a corresponding construction of copper-intensive charging networks. The International Energy Agency forecasts that world copper demand will grow almost 40% to 33 million tonnes annually by 2040.
Not all analysts are bullish. “It’s typical to see [production] disruptions and I don’t think we’re necessarily seeing any more than normal,” says Timna Tanners of Wolfe Research. Talk of China reopening this year overlooks the fact that copper demand there didn’t slow down in 2022. “Factories were still running, government stimulus and infrastructure was still chugging along.”
Talk of impending copper shortages are nothing new, says Al Root in Barron’s. In 1909, The Wall Street Journal fretted that “within the next three years, consumption should easily overtake production” because of electrification and the automobile. Most forecasts see copper demand rising 3%4% a year over the next decade, but that isn’t radically higher than the average annual rise of 3% over the past 30 years.
There is plenty of copper to mine if the price is right. Globally there are 890 million tonnes of copper “recoverable at reasonable prices”, says Root, equivalent to about 34 times current annual production. After all, high prices usually end up curing themselves in commodity markets, by “mitigating shortages and keeping production coming”.