Forecasts predicting a copper supply glut by 2024 have suddenly vanished into thin air.
The next few years were supposed to be a bumper year for copper as a series of new mega-projects were launched around the world. Most in the industry expect coal to show a sizable surplus before the market tightens again later this century. By then, surging demand for electric vehicles and renewable energy infrastructure was expected to clash with a lack of new mines.
Instead, the mining industry has emphasised the fragility of supply - whether it's the difficulty of developing new operations due to political and social opposition, or simply the day-to-day challenges of extracting rock from deep underground.
In the past two weeks, one of the world's largest copper mines has been ordered to close in the face of fierce public protests, while a series of operational setbacks has already forced a major miner to sharply lower its production forecasts.
Analysts said the sudden cancellation of about 600,000 tonnes of expected supply would shift the market from an expected large surplus to a balance or even a shortage. It's also a big warning for the future:Copper is a key metal needed to decarbonise the global economy, meaning mining companies will play a key role in facilitating the shift to green energy.
While prices have so far not reacted strongly to supply disruptions as market concerns over China's property sector persist, any sign of a recovery in demand will hit a nervous market.
Last week, the Panamanian government officially ordered First Quantum Minerals Ltd. to cease all operations at its $10 billion copper mine in the country. That followed weeks of protests and political wrangling that culminated when the country's Supreme Court invalidated the law backing its mining licence. The giant Cobre Panama can produce about 400,000 tonnes of copper a year.
While the market is still digesting the news of the impending closure of one of the world's largest copper mines (at least for now), Anglo American Plc also made a production-heavy announcement on Friday, announcing that it would be cutting output at its flagship copper operation in South America.
While problems at the company's platinum and iron ore mines in South Africa have been widely reported, the news of the copper production cuts caught investors off guard, causing the company's shares to plunge 19 per cent. Anglo American has cut its copper production target for next year by around 200,000 tonnes, the equivalent of reducing output from one large copper mine from global supply. Production will fall further by 2025.
Bank of Montreal Capital Markets (BMO Capital Markets) had predicted that there would be a large surplus of refined copper next year, but now there is a small shortage. Goldman Sachs Group Inc. had previously taken a much more optimistic view of copper and had already predicted a shortage of refined metal supply in 2024, which it now expects to surge to more than 500,000 tonnes. Jefferies now also expects a major deficit next year.
"The supply cuts reinforce our view that the copper market is entering a period of significant tightening," said Goldman Sachs analysts including Nicholas snowden.
Expectations of a looser market in the near future have weighed on copper prices for much of the year, causing them to move sideways. in early october, the international Copper Study Group (International Copper Study Group) said it expects a 467,000-tonne surplus in copper supply next year, its biggest forecast since 2014.
London metal exchange (lme) live copper stocks since the middle of the year soared to a two-year high, but has now fallen back for three consecutive weeks.
Jefferies said:Â "Supply disruptions have increased markedly and there is a growing likelihood of supply shortages in the market." "We may be at the foot of the next copper cycle."
[Source - CKNews.com]
