A threat of sanctions against Russian copper production has the metals’ market watch on edge after a roller coaster ride in March.
While the copper price steadied in the latter parts of the month, reports that the London Metals Exchange (LME) has discussed potential bans on copper trading has analysts looking over their shoulders to make sure they are ready for whatever is coming.
Copper prices rose sharply following the Russian invasion of Ukraine as disruption to trade routes and economic sanctions threatened to restrict supplies. Russia produces around 3.5% of the world’s copper and increasing sanctions would significantly affect access to those supplies.
Immediately after the invasion the price dropped to US$9,918/t but then as sanctions were announced the price rose to US$10,465 by 4 March.
The LME’s Copper three Month Official Price movements through March reflect the effect of sanction threats:
- March 1 – US$9,948.00
- March 2- US$10,220.50
- March 3 – US$10,420.00
- March 4 – US$10,440.00
- March 7 – US$10,720.00
- March 8 – US$10,250.50
- March 9 – US$10,070.00
- March 10 – US$10,172.00
- March 11 – US$10,166.00
- March 14 – US$9,925.00
- March 15 – US$9,865.00
- March 16 – US$10,121.00
- March 17 – US$10,171.00
- March 18 – US$10,240.00
- March 19 – US$10,191.00
- March 21 – US$10,295.00
Where those roller-coaster price movements head next will most likely depend on developments in Ukraine and whether further sanctions are brought against Russia. Nevertheless, it should be noted that the LME announced on 22 March that it currently has no plans to ban from its system copper or nickel from Russian producers.
Where those roller-coaster price movements head next will most likely depend on developments in Ukraine
Mid and long-term movements
Analysts are forecasting that supply and demand figures will have much greater mid and long-term effects on the copper price going forward.
Like most other commodities, copper’s price spiked dramatically in early March on the back of sanctions brought against Russia and threats to Ukraine exports.
However, unlike some other key base metals, the price of copper quickly righted itself and was balanced out by growing supply concern forecasts, largely related to supply concerns in Peru, the world’s second-biggest metal producer.
However, the mid to long-term forecast for copper prices are very bullish for strong growth.
As a key metal for the new energy future, copper demand is tipped to grow dramatically in coming years – with no major new production forecast to come online in that timeframe.
A recent survey by White & Case found that, for the third straight year, copper is set to be the best-performing metal in 2022, with 31% of respondents saying it’s set for another year of outperformance.
White & Case noted the metal, an economic bellwether and a key material for the energy transition, hit record prices last year, breaking above US$10,000/t.
The research said the price climb came at a time of production losses, from both COVID-19 disruptions and water issues in Chile, while industrial demand is growing.
“Our respondents’ enthusiasm for the metal is matched by the wider mining industry. The biggest miners remain universally bullish on its prospects, with demand expected to surge this decade and new supplies looking increasingly scarce,” White & Case reported.
A recent Bank of America global research report suggested the copper market may enter a deficit from 2025 onwards following the completion of the current wave of project buildouts.
Meanwhile, a report by Roskill has forecast total copper consumption will exceed 43Mt by 2035, driven by population and GDP growth, urbanization, and electricity demand.
Balanced against those significant demand growth predictions are estimations that while global copper production will grow by 4.3% in 2022 thanks to new input from mines in the DRC and Peru, it will still only total 22.3Mt.
A US$1.2T infrastructure package passed by the U.S. Congress in November 2021 is also tipped to have positive effects on copper demand.
Modern energy demands
Copper is also a key component in transportation vehicles, and with increasing emphasis on electrification, its demand is likely to explode as modern electric vehicles (EVs) need about four times as much copper as regular internal combustion engine vehicles.
Goldman Sachs analysts recently labelled copper “the new oil”, due to its importance to the EV market.
It has been estimated that in the next 20 years, the world’s copper miners must double the amount of global production — from the current 20Mt annually to 40Mt — just to match the demand for a 30% penetration rate of EVs.
S&P Global Market Intelligence predicts that due to a shortage of projects, copper supply will lag demand starting as early as 2025, with global mine production dropping from last year’s 21.5Mt to roughly 15.9Mt in 2030.
Diminishing supply from currently operating mines, combined with the projected increase in demand for copper concentrate over 2021-2030, would result in a 3.85Mt production shortfall in 2025, S&P Global estimates.
Chile issues
Along with Peru, Chile’s copper output has been heavily hit by low rainfall issues and falling reserves.
In 2021, Chile’s copper mine production was estimated at 5.6Mt of metal content, representing about 27% of the global copper production that year.
Chile’s statistics bureau reported that the South American company’s January 2022 copper production was down by as much as 15% compared with the previous month, and 7.5% compared with the corresponding period in January 2021.
Production at BHP’s Escondida mine continues to decline quarter-on-quarter due to lower feed grade, however the company has successfully negotiated collective bargaining arrangements which had threatened to affect production through protest action. Mine production for 2021–22 is estimated at around 1Mt.
Chile market watchers have recently raised concerns about the country’s proposed nationalization of its copper industry and what this may mean for the major mining companies that have invested heavily in the nation’s mining sector.
Production forecasts
Mine production is forecast to reach 24Mt in 2023, up from about 22Mt in 2021, as high prices and expectations of future demand growth create strong incentives for development projects.
Long project development timelines may result in production taking until 2023 to come online — leaving the copper market in deficit in 2022.
