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Goldman Sachs and UBS analysts expect the copper rally to continue, as the production outages in Chile, Peru or China do not seem to be short-term while these countries are also the top five global producers of the red metal. Copper is needed not only in industry due to its conductivity, but it’s also in solar cells or batteries for electric cars, thus playing one of the key roles in the green energy transition. The Swiss UBS Bank therefore expects this year's demand to increase by 3%. On March 21, the price at the London Metal Exchange hovered around $9,000 per ton. The price is rising also due to increasing investor bets on the FED's interest rate cuts and the weakening of the dollar.
At the end of last year, China's copper production reached record numbers. However, decline followed in the first months of this year, even though it still represents a year-on-year increase of 11%. Ore processing fees in China are currently close to zero, resulting in pressure on smelters to cut production. The level of fees paid by copper ore miners to smelters is indicative of the supply situation. Another factor of declining fees is the over-expansion of Chinese production capacity, so major maintenance in the Chinese smelting industry is expected this year, further encouraging the prospect of supply shortages.
Mines in South America, the world's largest copper deposits, also face their own challenges. Chile, the primary copper producer globally, contributed to 24% of the total copper production in 2023. Despite experiencing a 10% decline in production amidst the Covid-19 pandemic when compared to 2019 figures, Chile remains the foremost exporter of this valuable metal worldwide. State-owned Codelco, the world's largest copper miner, has played a key role in this decline. Throughout the pandemic, the mines encountered challenges with upkeep, leading to a series of sanctions from the Chilean regulator Sernageomin. These sanctions, totalling 29 instances, were primarily due to unfavourable working conditions, outdated machinery, and tragic accidents. Additionally, the company's production suffered from issues such as inferior-grade copper ore and unpredictable weather fluctuations. Codelco's output fell by 8.3% last year compared to the previous year. The company's management says it expects a return to its previous production levels this year, as several new mining projects will be opened, as well as reopening of the Ministro Hales mine, which was affected by a huge landslide in 2022.
Peru, the world's second-largest producer of the metal, has been facing protests from local communities and mine workers at Peru's Las Bambas mine for some time. The protests concern the expansion of mines in the area, which the communities oppose, or the improvement in working conditions and transport that the workers require. Despite these concerns, the government is actively engaged in negotiations with mining companies and communities to address concerns and facilitate expansion projects. Obstacles from local resistance, affect projects worth several million dollars and require efforts to address issues such as illegal mining and formalization of laws. Nevertheless, copper mining remains one of the most important sectors for the Peruvian economy and significantly contributes to the country's total export. According to Peru's Ministry of Mines and Energy, copper production fell 1.2% year-on-year in January. This decline was preceded by a 17% fall in output at MMG's Las Bambas mine and Freeport-McMoran's Cerro Verde mine.
Copper is an alternative to precious metals and can also be an attractive commodity to invest in. Its use in the industry, technology and energy sectors suggests that demand should not decline in the long run, and analysts agree. At the same time, it is important to understand that the factors influencing the price are a complex mosaic, and it is necessary to closely watch the word’s economic indicators.
Source: Investing.com*
Sources:
https://www.nasdaq.com/articles/top-10-copper-producers-by-country-updated-2024 https://www.investing.com/news/stock-market-news/rally-in-copper-price-just-the-beginning-says-ubs-432SI-3343710
https://www.mining.com/web/copper-price-resumes-rally-as-fed-rate-signals-boost-industrial-metals/
https://www.mining.com/web/chinas-copper-smelters-to-discuss-fees-as-crisis-roils-sector/
https://www.statista.com/statistics/254845/copper-production-of-chile/
https://www.mining.com/web/codelco-logs-december-production-setback/
https://uk.finance.yahoo.com/news/1-peru-copper-production-dips-224904572.html
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*Data relating to the past is not a guarantee of future returns.
[1] Forward-looking statements represent assumptions and current expectations that may not be accurate or are based on the current economic environment, which may change. These statements are not guarantees of future performance. Forward-looking statements inherently involve risk and uncertainty because they relate to future events and circumstances that cannot be predicted and actual developments and results may differ materially from those expressed or implied in any forward-looking statements.
