Copper starts 2023 with a burst

South American supply turmoil, China’s policy change are price rise factors, analyst John E. Gross says.

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Copper was trading for about $3.74 per pound on the COMEX exchange Jan. 4. Since then, it has trended upward to $4.20 per pound, with copper analysts pointing to supply and demand issues playing a role.

In his Jan. 13 issue of “The Copper Journal,” John E. Gross writes the price increase might have caught many people by surprise, with predictions of a 2023 recession widespread as 2022 came to a close.

Gross points to several fundamental reasons why copper prices have been rising the last several trading days, with conditions at South American copper mines at the forefront.

The veteran copper industry observer points to protests in Peru that “have hampered production” at two mine sites there. “In Panama, First Quantum Minerals is at odds with the government over a contract dispute that threatens 300,000 metric tons of [annual capacity],” Gross adds.

Finally on the supply side, he says “falling ore grades, maintenance issues and a shortage of water” are combining to reduce mined copper output in Chile.

The pinched supply is coming at the same time the People’s Republic of China has abandoned many of its “zero COVID” restrictions in an attempt to reawaken some slumbering industry sectors in that copper-consuming nation.

“Based on these considerations, the potential does exist for copper to continue rising, and similar reasons exist for the rest of the nonferrous family,” Gross writes.

Generators of red metal scrap and any dealers who have held onto material are likely pleased to see the return of $4 copper. Buyers of the material are not usually so keen to watch their operating costs rise, and are likely dismayed by a recent Goldman Sachs forecast that reportedly predicts copper prices will average about $4.42 this year, with the average price rising to $5.54 in 2024.

In a 20-page commodities outlook, Goldman Sachs also points to copper supply woes, writing, “Capital expenditure across mining companies in 2022 was nearly 50 percent below peak spend in [the] 2010s, while disruptions on the copper mine supply side are set to hit 1.6 million tons this year, a record level.”

While copper mining firms might be struggling to reignite production, Goldman Sachs does not see such shortages affecting the other electric vehicle or energy transition battery metals. “The battery metals whose producers have not been through the prior supercycle have investors’ confidence and so do not face such investor restrictions on production, underpinning our bearish medium-term view [on pricing],” writes the investment bank, perhaps referring in part to global efforts to ramp up lithium production.

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