Over the last week, the price of copper has once again been put into tension after the announcement of a possible suspension of the Panama copper mine, which produced 345,000 tons, as well as a strike planned for next week in the Las Bambas mine (Peru), which generated around 221,000 tons of the red metal from January to September. They represent 2% of the total world supply and are among the 10 largest mines in the world.
The duration of these potential disruptions is unclear at the current situation. However, the market reaction seems to have confirmed the fragility of the bearish consensus on copper, which is based on the expectation of an acceleration in mining supply in the first half of 24 months, as well as a slowdown in demand for the risk of recession in Western countries.
“In fact, if any of these mines were out of service for a prolonged period, given their large size, aggregate production would be significantly slowed down and, in turn, the prospect of a drop in the price of copper,” comment experts from Goldman Sachs in a recent report 6% and moves close to $3.8.
It is important to recognize that this situation occurs after a year in which the mining supply has already been much lower than expected. The year-on-year production growth has only been 1% and coincides with the shortage of cathodes in China, which is favoring a greater push of final demand inland, according to the firm’s story.
“The market for this metal is now seen with a smaller deficit this year, although we continue to foresee a modest deficit next year… Given the low initial stock, any increase in the restriction could cause prices to rise rapidly, in relation to our base scenario. , so we continue to point to an acceleration of the increases,” say Goldman metals experts.
Likewise, the underperformance of copper mining production has been a key aspect of fundamental indicators this year. The latest ICSG data shows that global copper mining production grew just 1% year-on-year through September, contrasting the consensus mining supply growth forecast for 2023 of 4%. Chile, down 2% year-on-year, has been a linger for copper supply with the South American country accounting for almost a third of global supply.
“Our current main hypotheses for next year are the acceleration of mental supply, which is linked to the new economy in Chile, Pere. and the Democratic Republic of the Congo in particular. However, a prolonged loss of copper production in Panama, Las Bambas, or both, would represent a significant downward risk for this aggregate supply path,” they add.
Drought risk and the ‘China effect’
The risk of drought linked to the El Niño phenomenon in Latin America also raises the risk of low production in the first quarter of 2024, for a region that represents close to 40% of the total mining supply. The possibility that mining supply growth falters is important because it would reduce the availability of concentrate necessary to maintain the current strong trend in refining production (with an increase of 5% year-on-year), which until now has been supported by the shortage of concentrate.
“A healthy concentrate supply environment is key to supporting the increase of almost 3 million tonnes of smelting capacity in China and elsewhere (Indonesia, India, Democratic Republic of the Congo) in 2023-24. “With a 10% reduction in baseline treatment and refining costs by 2024 (vs. 2023 settlement), and with spot market conditions also under pressure, signs of market stress are already beginning to appear.” of concentrates,” point out the bank’s experts.
The other important aspect of copper market risk is the trajectory of Chinese demand. Mining estimates in the country point to a well-supported demand environment for next year. Overall, market participants view China’s copper demand as being in a relatively healthy state, on track to grow 5-6% year-on-year this year, and expected to slow slightly to growth of around 3%. % next year.
“This demand environment will be supported next year by the same factors that have been supported this year, namely the green economy, the electricity grid and property construction. As our economists foresee a policy-supported growth path, there is a clear basis to anticipate the continuation of policy tailwinds, particularly for intensive metals manufacturing and infrastructure investment,” they indicate.
Goldman underlines the underlying strength of the need for copper supply in the Asian country for the entire industry focused on electrification: “In this context, we continue to expect a resilient demand for green metals in China, with a solid pipeline of projects underway. (solar projects and electric vehicle production plans) that will complement each other in the future.”
THE NAIS IS OFFICIAL EDITOR ON NAIS NEWS