The copper market has cooled since touching record levels above $10,000 a tonne in May but longer-term fundamentals for the bellwether metal remain bullish thanks to a global effort to electrify transport and shift to renewable power generation.
While there is consensus on demand growth, the supply side outlook is murky. Some 40% of the world’s copper production is controlled by just two countries – Chile and Peru – and political developments in South America are turning the tide against copper miners, Freeport-McMoRan CEO Rich Adkerson told investors in a conference call on Wednesday.
Adkerson, top tier copper mining’s longest serving CEO, said the task of increasing copper supply is getting harder as environmental groups and local communities refuse to grant miners a so-called social licence to operate and politicians seek a bigger share of industry profits:
“That’s just the reality around the world today.”
In Chile, Freeport is deferring a decision on a major project until it gets further political clarity, Adkerson said according to a Bloomberg report adding that even the investor-friendly US has proven reluctant to green-lighting new mines.
Despite this, Freeport is well positioned for growth via expansion projects at existing operations, he said and in anticipation of rising demand, Freeport expects its capital expenditure to be $4.7 billion in 2022, compared with $2.1 billion last year. Excluding Indonesian smelter projects to serve the company’s expanded Grasberg operations in the country, the figure is estimated to be $3.3 billion.
Record supply gap
Green-related demand will gather pace in the second half of this decade, ultimately generating nearly 5 million tonnes of additional demand, according to a recent Goldman Sachs forecast.
Set against a peak in global mine supply from 2024 onwards the investment bank believes these fundamentals will generate “a record long term supply gap by the end of the decade that has to be solved by investment in new mine capacity.”
The long-term supply gap has really opened up in the last few years and at the current 8 million tonnes is close to double the supply gap during the last bull market in the 2000s and early 2010s.
“This can only be resolved by higher prices stimulating investment in new supply,” according to Goldman.