Record copper price signals accelerating race for supplies

Chris McHaney, executive vice president and head of investment management and strategy at Global X, joins BNN Bloomberg to focus on copper performance amid socioeconomic uncertainty.

LONDON — Copper prices soared to records above US$13,000 a metric ton on Monday, driven by fears of shortages and expectations turmoil in Venezuela could accelerate the broader race to secure critical minerals.

Expectations of strong demand growth from data centers needed for artificial intelligence and electric vehicles helped fuel a 40 per cent increase CMCU3 last year in prices of the metal used to make power cables.

“Copper prices need to rise further to persuade miners to generate significant new production,” SP Angel analyst John Meyer said.

“Many existing mines have been run at or well beyond their initial design capacity for many years, raising the risk of catastrophic failure as seen with the mud rush failure at Grasberg in Indonesia.”

While Venezuela is not known to produce refined copper, U.S. President Donald Trump putting the country under temporary American control after the U.S. captured President Nicolas Maduro has also highlighted risks to the security of supply of critical minerals generally.

“Metals, copper included, are rallying on the thematics of critical minerals and security of supply chains in the new world order, which comes into yet sharper view through latest events in Venezuela,” said Duncan Hobbs, research director at Concord Resources.

Next generation of copper mines

Mine disruptions including an accident at Freeport-McMoRan’s giant Grasberg mine in Indonesia in September and a strike at Capstone Copper’s Mantoverde copper and gold mine in northern Chile have reinforced the theme of shortages.

Analysts at Citi estimate refined copper production at 26.9 million tons this year, indicating a 308,000 ton deficit.

Investments in new copper production are needed to meet future demand, but that won’t happen without higher prices.

“We see the breakeven price for development of the next generation of new copper mines in excess of $13,000 a ton,” Meyer said.

Adding to the furore is the possibility of tariffs on U.S. imports of the metal used in the power and construction industries, which has attracted large amounts of copper to the United States, mostly from LME warehouses MCUSTX-TOTAL.

U.S. import tariffs on copper imports remain under review, though copper was given an exemption from levies that came into force on August 1.

Stocks of copper in warehouses registered with U.S.-based Comex, at 499,841 short tons or 453,450 metric tons as of January 2 HG-STX-COMEX, have jumped 400 per cent since April as traders and producers moved to ship metal ahead of any levies.

Macquarie analyst Alice Fox estimates another 360,000 tons is stored off exchange in the U.S., and that the fundamentals of the market do not justify current prices.

“Not all of this will be ‘new’ metal, but it suggests the global market was in a sizeable surplus of over 500,000 tons last year,” Fox said.

(Reporting by Pratima Desai; Editing by Jan Harvey)