Morning Copper Markets
The Copper Supply-Demand Gap
Copper's diverse industrial applications make it a critical economic indicator, often referred to as “Doctor Copper.” Recently, copper prices surged to $10,000/tonne, highlighting a supply-demand imbalance driven by supply cuts, a strong Chinese market, AI technology, and the energy transition. Major producers in Latin America, including Chile and Peru, face challenges such as electricity shortages, lower-grade ore, and local protests, impacting production. China's robust demand, driven by infrastructure and real estate investments, has pushed its copper consumption 12% above last year's level. Copper's role in electric vehicles and renewable energy further boosts long-term demand. Investors see opportunities in rising copper prices despite risks related to production and geopolitical factors.
Indonesia to Delay Ban on Copper Concentrate Exports to Year-End
Indonesia has postponed its ban on copper concentrate exports until the end of the year, easing concerns about supply disruptions. The delay relieves the global smelting industry, already strained by shortages from other major producers. Indonesia aims to stimulate domestic processing capacity, but facilities need time to reach full operational levels. This decision comes as the industry grapples with a significant supply-demand gap, crucial for meeting the needs of the energy transition.
How High Copper Must Be for Supply to Mount
Copper prices need to exceed $8,400 per ton to incentivize new supply, with current prices at $10,000 providing good returns for miners. However, inflation and permitting challenges have increased the incentive price by 30% since 2018. The rising costs have made projects like Teck's QBII significantly more expensive, requiring nearly $10,800 per ton for a 15% IRR. Efficient projects with lower capital intensities can still be viable at lower prices. The industry standard 15% IRR hurdle rate remains relevant, though poorly executed projects face higher cost demands.
Macroeconomic Data
Sources: Bloomberg, StoneX
Copper Prices and Spreads
Sources: Bloomberg, StoneX
Comex Active & LME 3M – 3 Day Price Trend
Sources: Bloomberg, StoneX
Comex Active Month – 6 Month Price Trend
Sources: Bloomberg, StoneX
LME Rolling 3M – 6 Month Trend
Sources: Bloomberg, StoneX
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