With the reopening of China, the price of copper exceeds $9,000

Copper prices reached the highest level in the last 7 months. On the London Metal Exchange (LME), a tonne of the red metal for three-month delivery was trading at $9,124.50 on Thursday, the best price since last June.

In recent days, the Chinese government’s decision to end the “zero Covid” policy and reopen its borders has increased the attraction of investors. Beijing is trying to revive its slowing economy in 2022. However, such a revival will result in increased demand for the country’s largest consumer of copper in the world, which alone will absorb half of the world’s copper production. refined copper.

This return of the People’s Republic is taking place in a structurally deficit copper market. In the first ten months of 2022, there was a shortage of 693 thousand tons of metal between production and demand. According to figures from the World Bureau of Metal Statistics (WBMS), the deficit was already 336,000 tonnes in 2021.

Demand is growing faster than supply

Because in 2022, the world production of processed metal increased by 1.4% to 20.57 million tons, especially thanks to China and India, the pace of consumption is faster, between January and October 2022, it increased by 3.7% to 21.27 reached a million tons. . Despite the arrests, China’s needs rose 5.4% to 11.88 million tons.

A situation that forces interested parties to enter their shares. In late October, Costas Bintas, head of metals at Trafigura, one of the world’s largest commodity traders, warned of dangerously low levels. They almost represented then “4.9 days of global consumption” and end the year “in 2.9 days”. For its part, Glencore warned last month that the cumulative shortfall between 2022 and 2030 would be 50 million tonnes of copper. Given the classic cyclical activity of commodity markets, will the market be able to respond to this deficit? “This time will be a little different”– answered Gary Nagle, one of the managers of the Swiss mining giant. “The price does not yet reflect this situation”.

Copper, the main critical metal by volume

Indeed, the red metal will see its classic selling points in sectors such as construction, automotive, electronics… and will expand further in the future in products related to infrastructure and energy transition. : batteries for power grids, wind turbines, solar panels or even electric cars.

“While the use of lithium and cobalt has increased in percentage terms since 2016, copper is the most important metal by volume, accounting for 70% of the total consumption of critical metals for clean energy in 2021. »The International Energy Agency (IEA) emphasizes this in its annual report “Energy Technology Outlook 2023”, published this Thursday.

In fact, this tension is already showing itself in the production of clean energy. “The cost of manufacturing wind turbines outside of China is rising again after years of decline due to a doubling in the prices of materials such as steel and copper between the first half of 2020 and the first half of 2022. Similar trends are observed in photovoltaic production. solar panels”– says the IEA.

High prices of red metal are usually an incentive for the development of new projects. “Currently, between 2019 and 2024, about 11 million tons of new capacity is planned to be put into production”says the International Copper Study Group (ICSG). In this dynamic, one country plays a central role in this market: China. (he) It accounts for 80% of the announced additional production capacity for copper by 2030 and dominates the announced processing capacity for strategic metals used in batteries: 95% for cobalt and about 60% for lithium and nickel »defines the BEA for its part.

If recycling is still to be developed, the current ratio for copper is barely 46% against 86% for gold and 60% for nickel, with supply remaining largely dependent on mine production. According to WBMS data, global mining production in the first ten months of the year increased by 1.7% compared to the same period of 2021 and amounted to 17.9 million tons of concentrate.

Old mines in Chile

However, certain difficulties will affect this development. In Chile, the world’s leading supplier of copper with a quarter of the world’s consumed volume, aging deposits and difficult climatic conditions, especially hydraulic stress (which requires an average of 30 copper), production fell by 6% in 2022. m3 of water per ton of copper ore).

But high prices are also a source of contention between mining groups and governments. The operation of the largest copper mine in Central America, located on the coast of the Caribbean Sea in Panama, 120 km from the capital, works in slow mode. The government is renegotiating with Canadian mining company First Quantum Minerals the amount of royalties it wants to multiply by 10 to take advantage of the price increase. The deal is about to be finalized. The Canadian company has invested more than 10 billion dollars in the development of the field, which produces 85 million tons of ore, which employs more than 7,000 people and produces 300,000 tons of copper metal per year.

Because the big winners are the mining groups that don’t have profits that are the envy of the oil and gas groups. Performance reflected in the X Copper Miners ETF, which replicates an index of shares of the 43 largest copper-producing mining groups. Almost 43% progress in 6 months and 100% cumulative performance in 3 years!