Global Copper producers gather as electric cars drive demand growth

The Global copper producers are converging in Chile this week as tightening supply buoys prices, even as the industry grapples with declining ore quality, project delays and worries the US-China trade war may hit long-term demand.

Despite these challenges, the industry is planning for substantial growth in the next decade thanks to an expected boom in production of electric vehicles, which use twice as much copper as internal combustion engines. Car makers are promising to produce all-electric fleets.

 

Picture: ISTOCK

With all that in mind, hundreds of investors, executives, analysts and regulators are gathering in Santiago, the Chilean capital, for the annual World Copper Conference.

“From a numbers perspective we have a deficit in copper, and it's expected to be a tighter market in 2019 relative to last year,” said Eleni Joannides, a copper market analyst at consultancy Wood Mackenzie.

Relatively upbeat commodity prices since January have lifted producers such as Freeport-McMoRan, Antofagasta, BHP and Anglo American out of the doldrums and presented them with a new problem: the hunt for high-quality assets at a time of geopolitical uncertainty.

LME cash copper is expected to average $6,397 a ton this year, a Reuters poll of 30 analysts shows, slightly lower than $6,437 on Friday.

Bull market for copper?

“I think we’re heading into a bull market for copper,” said Jefferies mining analyst Christopher LaFemina.

A lack of new supply and steady demand in 2019 for the metal, widely used in power and construction, should keep the 25-million tons market in a slight deficit and support prices, analysts said.

The industry is moving to bring new supply online, but it will take time. Freeport, the world's largest publicly traded copper producer, cut its 2019 output forecast at Indonesia's Grasberg mines by more than half as it transitions to underground operations, a costly process that will take years.

But Freeport, BHP, Nevada Copper and other miners are spending more than $1.1bn to develop fresh copper projects in the US, once seen as a laggard in the global mining industry.

Panama, not historically associated with a large mining industry, is also seeing investment dollars. First Quantum Minerals Ltd plans to spend $327m to expand a copper mine, with the goal of increasing production by 375,000 tons annually within five years.

Tightening supply in 2019 was Freeport, due in part to the Grasberg mine plan, while miner Glencore halved its 2019 output from its Mutanda copper and cobalt mine in Democratic Republic of Congo to 100,000 tons.

Meanwhile, global visible inventory in the form of combined stocks held by the London Metal Exchange, Comex and the Shanghai Futures Exchange have nearly halved from a year ago to around 500,000 tons, data from the exchanges show.
Analysts said this has helped boost sentiment in copper and some other metals, which had been held down by the US-China trade dispute and hiccups in economic growth of top consumer China where stimulus has been promised.
Copper is one of the metals that will benefit the most from an expected boom in the use of electrical vehicles, but significant demand for the low-emission automobiles is expected to only ramp up in the middle of the 2020s.

Roskill expects sales of electric vehicles powered by rechargeable lithium-ion batteries to rise to 17-million units, or 20% of the total, in 2025, and 32-million, or 37%, by 2030 compared with 3%, or 2.1-million in 2018.
Still, some copper executives are concerned that aluminium may try to supplant copper’s role in electronic equipment in the near future. Aluminium is a cheaper alternative to conduct electricity, though less efficient.

A large portion of the weeklong conference is devoted to research presentations from industry scientists studying new applications for the red metal. 

• Reuters