Copper price/inventory.
China’s share of global demand.
China’s copper intensity-of-use is already building, despite the rise of EVs. Copper’s price outlook? 2024 price floor Even after copper’s robust 25% rally from Oct-22’s lows (spots US$8,600/t-$3.90/lb), we remain copper bears. We expect the US Fed’s on-going inflation-tar- geting cash rate policy to cap speculator-led upside price risk during 2023. Passing speculator interest in this metal market, together with subdued metal demand, should take copper’s price to US$7 000/t by 2024, at which point the hike cycle will be replaced by supportive funda- mentals. Features of copper’s medium-term demand outlook include stabilising growth in China, and the early stage of US infra-build. Copper’s longer-term fundamentals, beyond 2024, are price-supportive: mine supply growth is weak (source of 90% of all Cu units); China’s on- going high dependency on imports (75% of total supply; feeding mainly into power sector; property) competing increasingly with the rest of the world’s own demand, including on-going government- backed EV/recharge growth.
issues: declining production rates in Chile, the larg- est source of exported metal; national protests in Peru; forced mine closure in Panama (now resolved), etc. Chile’s copper mining industry (25% of global mine supply; 2022 Cu production of 5.3 mt; 2023e, 5.5 mt) is reporting multiple pressure points: a decade-long drought (key input for processing); aging mines; declining grades; power supply issues; on-going uncertainty over Chile’s constitutional reform. We forecast a perennial decline in Chile’s production, despite Codelco’s funding plans to underpin its own production rate over the coming decade (Codelco’s 2022 output fell 10%YoY to 1.55 mt Cu). In Peru, political conflict emerged last December, with nationwide protests agitating for the replace- ment of the new government and for ousting former president Castillo. The county reported a marginal decline in total copper output in January (12 mines; 2.4 mtpa contained Cu; 11% of global mine supply). Electrification vs. Conventional Two key elements of a popular bullish copper inves- tor view, are: 1. New EV driver: longer-term copper demand is underpinned by the emerging global EV sector (via harness; batteries; re-charge network). 2. Conventional end-uses stable: existing copper consumption rate, particularly in China, is at least broadly unchanged, into the long-term. While EVs represent a new, important longer- term demand driver of copper, we remind investors not to regard the EV demand driver in isolation, but together with all other end-uses, particularly if there are possible changes in the growth rate of major, conventional demand. For example, China’s economy is now reporting an intensity of copper-use that corresponds with other major economies. Arguably, these data are broadly consistent with evidence that growth in China’s infrastructure and property sectors (takes 45% of China’s total copper supply) has stabilised in the past 4-7 years. It is likely that downside risk to
EVs represent a new, important longer-term demand driver of copper.
April 2023 MODERN MINING 13
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