Copper prices on the London Metal Exchange (LME) saw upward momentum in the first quarter of the year on the back of tightening supply and increasing demand from the energy transition.
After bottoming out at US$7,800 per metric ton (MT) in the fall of 2023, copper prices bounced back to start 2024 in higher territory, but elevated supply kept the red metal trading in the US$8,000 to US$8,500 range until mid-March.
Since then, copper has seen strong gains, reaching a quarterly high of US$8,973 on March 18. With increasing market volatility since the start of April, prices continued trending up to reach US$9,365 on April 10.
At the time, independent metals and mining consultant Karen Norton told the Investing News Network (INN), “With the market now looking more finely balanced, prices are likely to prove more susceptible to broader swings in either direction in the advent of significant news that affects the market.”
In an email to INN at the beginning of April, Exploration Insights Editor Joe Mazumdar said, “The concentrate market balance is accurately reflected in the fall of TC/RCs. To ensure the profitability of the domestic smelters, the Chinese manufacturers have decided to cut production, bring maintenance work forward and/or delay further expansions.”
According to Mazumdar, the cuts to smelter capacity will begin to put pressure on the availability of refined stockpiles and push copper closer to a deficit position sooner than expected.
This supply bottleneck caused significant gains for the metal’s price through the last half of March and into April.
While this is largely good news for copper producers as high prices and low TC/RCs improve margins, Mazumdar thinks the price will need to stay elevated to have any real impact on investment into the industry.
The event that has had the biggest impact on copper supply recently is the closure of the Cobre Panama mine in Q4 2023. The mine’s annual output of 331,000 MT of copper accounted for 1 percent of global production — a significant number for an industry set to face increasing demand and a lack of incoming new supply.
Panama will be holding elections in May as Cortizo completes his second and final term, meaning the country will soon have a new administration. Mazumdar told INN that First Quantum intends to negotiate with the incoming administration in the hopes of striking a deal that is favorable to both parties.
“The current president will not stand in the next election in May 2024; therefore First Quantum plans on working with whomever is elected to try and restart the mine and avoid the arbitration. Cobre Panama represents about 5 percent of the GDP of Panama and employs 30,000 to 40,000 people directly and indirectly,” he said.
Among its goals is advancing critical minerals projects that meet ESG standards.
Ultimately, the goal of the MSP, the IRA and other regional programs is to help accelerate critical minerals projects by working with government and industry to help secure funding, provide diplomatic support and diversify supply chains.
Copper’s supply stresses look likely to continue in 2024 and beyond due to a lack of new supply in the pipeline, and slow permitting times for assets that are underway. At the same time, the red metal is expected to see higher demand from renewable electricity generation, electric vehicle production and increasing infrastructure needs.
However, now that more governments are labeling copper a critical mineral, there’s hope that bottlenecks in supply may lessen and new projects may be able to make progress. Overall, a landscape is emerging that could benefit investors who are looking for long-term plays in an industry facing immense supply-side constraints in the coming years.
Still, given the challenges in discovery, permitting and approval, investors should do their due diligence, researching all aspects of a company, including its biggest projects and the risks associated with them.
Securities Disclosure: I, Dean Belder, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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