Copper Supply Unexpectedly Lower Than Initially Thought

The copper market has unexpectedly lost the surplus supply it was poised to enjoy for the next few years. Experts had predicted a surplus of the metal through the end of the year and into 2024; that surplus was expected to contribute to additional supply in the coming years. The general consensus was that there would be a comfortable supply surplus for the near future until surging demand from renewable infrastructure and electric vehicles tightened the market later in the decade.

However, the mining industry dashed these expectations when it demonstrated how vulnerable it is to market factors such as social opposition and politics as well as the sheer logistics of launching a new mining operation and the daily challenges associated with extracting minerals from the earth’s crust.

First Quantum Minerals Ltd., one of the largest copper miners on the globe, closed in recent weeks after fierce public protest at the mining company’s renewal followed by a Supreme Court ruling. In addition, operational setbacks have forced other leading miners to cut their production forecasts. This has resulted in the sudden loss of an estimated 600,000 tons of expected copper supply, moving the global market from a comfortable surplus to what some experts would call a deficit.

The copper supply chain could face significant pressure much earlier than anticipated if miners do not increase their production capabilities to reach their previous production output estimates. Although copper prices still haven’t taken a significant hit from the unexpected cut in future supply, any sign of increased demand could result in a tight market.

Panama’s government ordered Canadian miner First Quantum Minerals to cease all operations after weeks of fierce protests and intense political wrangling following the renewal of the company’s concession to operate the $10 billion mine. After the Panama Supreme Court declared the law underpinning First Quantum Minerals’ mining license unconstitutional, the global supply chain lost around 400,000 tons in annual supply.

This was swiftly followed by an announcement from Anglo American Plc that it would cut copper output at its main production center in South America by around 200,000 tons, reducing the world’s annual supply even further. News of the slashed production caused the company’s shares to drop by 19%. Shares may fall even further as the company has said copper production will drop again in 2025.

According to BMO Capital Markets, the copper market now has a small deficit. Goldman Sachs Group sees the supply gap increasing to more than half a million tons while Jefferies predicts a major deficit in 2024.

Copper producers such as Southern Copper Corporation (NYSE: SCCO) could benefit greatly if they maintain or boost their current production levels and shortages manifest in the months ahead.

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