Modern Mining April 2023

Copper price/inventory.

China’s share of global demand.

China’s copper intensity-of-use is already building, despite the rise of EVs. Copper’s price outlook? 2024 price floor Even after copper’s robust 25% rally from Oct-22’s lows (spots US$8,600/t-$3.90/lb), we remain copper bears. We expect the US Fed’s on-going inflation-tar geting cash rate policy to cap speculator-led upside price risk during 2023. Passing speculator interest in this metal market, together with subdued metal demand, should take copper’s price to US$7 000/t by 2024, at which point the hike cycle will be replaced by supportive funda mentals. Features of copper’s medium-term demand outlook include stabilising growth in China, and the early stage of US infra-build. Copper’s longer-term fundamentals, beyond 2024, are price-supportive: mine supply growth is weak (source of 90% of all Cu units); China’s on going high dependency on imports (75% of total supply; feeding mainly into power sector; property) competing increasingly with the rest of the world’s own demand, including on-going government backed EV/recharge growth. 

issues: declining production rates in Chile, the larg est source of exported metal; national protests in Peru; forced mine closure in Panama (now resolved), etc. Chile’s copper mining industry (25% of global mine supply; 2022 Cu production of 5.3 mt; 2023e, 5.5 mt) is reporting multiple pressure points: a decade-long drought (key input for processing); aging mines; declining grades; power supply issues; on-going uncertainty over Chile’s constitutional reform. We forecast a perennial decline in Chile’s production, despite Codelco’s funding plans to underpin its own production rate over the coming decade (Codelco’s 2022 output fell 10%YoY to 1.55 mt Cu). In Peru, political conflict emerged last December, with nationwide protests agitating for the replace ment of the new government and for ousting former president Castillo. The county reported a marginal decline in total copper output in January (12 mines; 2.4 mtpa contained Cu; 11% of global mine supply). Electrification vs. Conventional Two key elements of a popular bullish copper inves tor view, are: 1. New EV driver: longer-term copper demand is underpinned by the emerging global EV sector (via harness; batteries; re-charge network). 2. Conventional end-uses stable: existing copper consumption rate, particularly in China, is at least broadly unchanged, into the long-term. While EVs represent a new, important longer term demand driver of copper, we remind investors not to regard the EV demand driver in isolation, but together with all other end-uses, particularly if there are possible changes in the growth rate of major, conventional demand. For example, China’s economy is now reporting an intensity of copper-use that corresponds with other major economies. Arguably, these data are broadly consistent with evidence that growth in China’s infrastructure and property sectors (takes 45% of China’s total copper supply) has stabilised in the past 4-7 years. It is likely that downside risk to

EVs represent a new, important longer-term demand driver of copper.

April 2023  MODERN MINING  13