The copper market is literally hotter today than at any other time in history.
“Open interest” in the copper market has surpassed 200,000 contracts for the first time ever. This means that more “long” copper traders are currently holding contracts in the copper futures market than ever before.
Why is the copper market so hot? A combination of short-term drivers and long-term fundamentals is telegraphing a major bull market in copper – extending as far as analysts can see.
Major bull market now underway in copper
The near-term bullish set up for copper traces back to the beginning of December 2023. That’s when several sudden supply shocks to the market reversed 2024 supply/demand forecasts for copper from an expected surplus to a surprise deficit.
Dynamic Wealth Research previously
alerted investors to this important development.
Mine Supply Crisis is Game-Changer for Copper Market
As many mining investors already know, on November 28th, due to a court ruling, the huge Cobre Panama Mine (in Panama) has been shut down indefinitely. This has removed 370,000 tonnes (per year) of copper production from the market – perhaps permanently.
Roughly a week later, mining giant Anglo American Plc reduced its copper guidance for 2024 by ~200,000 tonnes. That’s nearly 600,000 tonnes of copper production erased for 2024.
Note that this unexpected “supply crisis” came at a time when global copper stockpiles were already sitting near all-time lows.
In properly functioning markets, the price of copper would have immediately exploded higher. Instead, in the algorithm-corrupted markets of today, the price of copper actually tracked lower after this news came out.
But dysfunctional markets can’t alter real-world supply/demand fundamentals. Starting in early February, the bull market that was telegraphed for copper at the beginning of December has now materialized.
Since bottoming on February 9th at $3.67 per pound, the price of copper is ~10% higher and has recently tracked as high as $4.12 per pound. More importantly, the moment that we start to look at the Big Picture for copper, we see that the current bull run is just the beginning.
Long-term SUPPLY CRISIS in copper
The long-term supply/demand profile for the copper market today is strongly suggestive that we are heading for the
worst long-term supply crisis in copper since the dawn of the Industrial Revolution.
- Global copper inventories are at the lowest level ever
- The market is currently in deficit
- Goldman Sachs is predicting “peak mine supply” for copper by 2025
Translation: current supply parameters will make it difficult for the copper mining industry just to be able to continue to meet
current demand. However,
copper demand is projected to rise by millions of tonnes per year over the next decade.
Jakob Stausholm, CEO of multinational mining powerhouse Rio Tinto,
estimates that
China alone will need 4 million tonnes per year more copper by 2035.
S&P Global is
projecting that
global copper demand will double between now and 2035.
Why is Goldman Sachs expecting to see
“peak mine supply” in the copper market by next year?
Many mines around the world are nearing the end of their lifespan and the quality of the ore is in decline, meaning more is needed to achieve the same standard.
This means that significant new sources of copper supply will be necessary just to maintain copper production at existing levels. But the copper market needs millions of tonnes of additional supply each year above and beyond that.
Put all these short-term and long-term factors together, and the world is currently facing the worst supply-crisis for copper since the Industrial Revolution.
At a time when the copper mining industry needs to increase output faster than ever before, Goldman Sachs is asserting that the industry will be unable to increase copper production at all.
Mining icon, Robert Friedland, asks where are these additional millions of tonnes of copper (per year) supposed to come from?
If we define a “major copper mine” as a mine capable of producing 200,000 tonnes of copper (or more) per year, it will require 20 new major copper mines coming online over the next decade just to satisfy China’s incremental demand.
There aren’t even that many major copper projects currently under development, and (as the graphic above indicates) apart from existing pipeline projects there is
nothing on the horizon.
This is the obvious result of what Goldman Sachs (cynically) refers to as
“an underinvested supercycle”.
Despite enormous projected increases in demand for copper (and other metals and minerals), Big Bank trading algorithms have strangled mining stocks to such a degree over recent years that global copper exploration has nearly ground to a halt – and major discoveries are simply non-existent.
The result of this completely dysfunctional market for copper stocks is that the mining industry needs to address the worst long-term supply crisis for copper with exploration and development for new copper projects at perhaps its lowest level in more than 50 years.
How badly have the Big Bank trading algorithms strangled the mining industry, in general, and copper stocks in particular?
At a time when
the price of copper is roughly 10% below its all-time high, most junior copper stocks are trading near or at all-time lows. Most of these junior copper exploration companies have been reduced to microcaps, with market caps of less than $10 million – and
share prices suppressed to near-zero.
Now it’s time to pay the piper.
Copper prices to the moon
With global copper inventories at an all-time low and the copper market currently in deficit, that alone implies that the price of copper should already be at an all-time high today: >$4.58 per pound.
However, with record-low inventories, a supply deficit, and “peak supply” projected for the near future, this implies a substantial price premium for copper above any previous level – simply to meet existing demand.
When we combine record-low inventories, a supply deficit, flat mine supply and massive additional demand for copper projected over the medium to long term,
this implies the price of copper rising to multiples of the current price (~$4.00 per pound).
To understand how dire is the supply crisis for copper requires additional context.
China now accounts for
55% of global copper demand all by itself. That is
more than twice as much copper as is consumed by North America, South America and Europe – combined.
As previously stated, Rio Tinto is projecting that China’s near-insatiable demand for copper will rise by 4 million tonnes per year over the next decade.
What is the driver of this mind-boggling level of copper demand? Think three letters: B-R-I.
China’s Belt & Road Initiative appears, more and more, like the greatest global economic transformation since the Industrial Revolution. Indeed, the BRI may eventually be renamed “the
Second Industrial Revolution”.
Already, more than 140 nations have signed on to participate, comprising nearly the entire Global South. Already, trillions of dollars of direct and indirect investment have gone into BRI-related projects.
The same Western banks responsible for creating the supply-crisis in copper are now starting to get nervous about copper inventories going to zero.
A Microsoft News article that quotes heavily from Western financial analysts asks nervously if China is currently ‘cornering’ the global market for copper.
“We can’t tell for sure whether China has been stockpiling, because we don’t really have an idea of the number of stocks it has off exchanges,” says [commodities economist, Kieran] Tompkins.
“But what we can tell is that China has really entrenched itself as a very dominant producer of refined copper.”
Yes, not only does China consume more than half of the global supply of copper itself, it is now dominating the refining of copper. China is also the world’s #3 nation in copper mining.
Most of the copper mined in the world today goes straight to China. And once it gets there, it never leaves.
This means that the first international warehouses that will start to run out of copper if this supply-crisis intensifies will be Western warehouses. Indeed, even the United States itself is now a relatively minor player in the global copper market.
The United States supplies 6% of the world’s copper supply with its domestic mining industry. It consumes ~10% of the global supply. Paltry numbers next to China.
Two investment scenarios for copper stocks
With the worst copper supply-crisis in history, obviously copper exploration stocks are not going to continue trading near all-time lows. Generally speaking, there are only two scenarios for these stocks going forward.
Scenario #1
Big Bank algorithms continue to suppress both the price of copper and copper mining stocks. As a result, very little new supply comes onto the market.
Noted Australian commodities analyst, John Forwood, thinks that the copper market requires a minimum
“incentive price” of $4.75 per pound in order to bring any significant amount of new copper supply online.
Australia is the world’s leading mining nation, and the #6 copper producer, so Australians offer a keen perspective on the global mining industry.
With copper inventories already at an all-time low and the market in deficit, panic-hoarding would begin in the next 6 – 12 months and the copper market simply breaks – as available warehouse inventories approach zero.
The price of copper goes ballistic (+$20 per pound) as desperate end-users engage in a bidding war for precious supplies. Mining stocks already trading at historic lows are not merely potential 10-baggers, but more successful companies are possible 20- to 50-baggers.
Scenario #2
With the price of copper up ~10% in the last month and Western analysts experiencing legitimate supply fears, the Big Banks decide to allow the copper market to run in order to “incentivize” additional supply.
The price of copper goes to +$5 per pound over the near term (a new all-time high), leading to a revaluation of copper mining stocks.
At existing price levels, any significant revaluation of these junior exploration companies would imply multiples in the range of 3X to 5X.
A legendary automotive parts commercial (for Fram oil filters) offered this iconic warning: “you can pay me now, or pay me later.”
In the auto parts commercial, the choice was between paying for an oil filter today, or paying for an engine overhaul tomorrow. In the copper market today, the choice is equally stark.
“Pay me now”: we see a smooth ascent in this new bull market for copper to a new record high, pulling up dramatically undervalued copper mining stocks with it.
“Pay me later”: we see continued algorithm suppression until the copper market breaks, copper prices go ballistic, and copper mining stocks are launched into orbit.
A major bull market for copper is now telegraphed. For copper mining stocks, there now appears to be a pot of gold at the end of the rainbow.
