(Bloomberg) — Copper miners are finally increasing production after several years of underperformance. But it may not be enough to meaningfully lift reserves from historic lows, keeping supply tight in a market critical to the energy transition.
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The reason is capacity bottlenecks at smelters around the world, whose role in turning ore into metal makes them an important link in the supply chain between miners and manufacturers. manufactures products ranging from cell phones and air conditioners to electric vehicles.
“There is not enough smelting capacity here,” said Ye Jianhua, analyst at Shanghai Metals Market. The excess mining production will be “difficult to alleviate the scarcity associated with low refined copper inventories next year,” he said.
The prospect of a supply wave being met by insufficient conversion capacity is being reflected in the increase in fees for converting primary ore or concentrate into refined metal. Fees, known as processing and refining fees, are deducted from the price of the concentrate and are a major driver of profitability for smelters as well as for many traders.
Benchmark annual metallurgical fees jumped 35% to a six-year high when they were agreed on Thursday by mining company Freeport-McMoRan Inc. of the United States and Chinese smelters at an industry gathering in Singapore. China accounts for about half of global copper consumption and its metallurgical industry is the largest in the world.
Many traders, miners and analysts say they are expecting copper concentrate accumulation in the coming year. Some are expecting an increase in global inventories of ore with copper content of 500,000 tons or more. But the smelter bottleneck means that most people expect the copper metal market – the form of pricing on the London Metal Exchange – to be much less surplus, if any.
On one hand, copper ore supplies will grow at their fastest pace in seven years, according to the International Copper Research Group, with production rising in Africa and Latin America, driven by several new mines – including Anglo’s Quellaveco mine. American Plc in Peru and Resources Ltd.’s Quebrada Blanca 2 Project Teck. in Chile — increased capacity.
On the other hand, global metallurgical capacity will expand more slowly. China has largely driven the increase in recent years, and although the country’s output is expected to increase next year, it may not be able to keep up with the increase in mine supply.
Even existing capacity is limited. China’s smelters have experienced increasing disruption in recent years, including power outages, said Xu Yulong, deputy general manager of China Copper International Trade Group. and government efforts to reduce energy intensity and consumption.
When Chinese smelter representatives met with executives at leading mining companies in Singapore this week to negotiate supply deals for next year, officials from China Copper spoke out. highlighted ongoing disruptions, including cuts to processing due to plans to relocate a metallurgical plant in Yunnan province, according to two people familiar with the matter.
Energy conversion
The consensus that mine supply and smelting capacity will not match for a while can still turn out to be false – and it’s not the first time traders have erred over the seemingly certain. on the copper market.
Mining companies may face unforeseen difficulties in raising output. China’s smelters can handle more than expected. A sharp global economic downturn will affect demand for copper and cause copper smelters to shut down.
And even if the short-term outlook is ample copper ore supplies, few expect this disparity to last. Three new major smelters outside China are scheduled to be operational in the second half of 2024, by Adani Enterprises Ltd. in India, Freeport McMoRan in Indonesia and Ivanhoe Mines Ltd. at the Kamoa-Kakula mine in the Democratic Republic of the Congo.
Meanwhile, major miners are warning of a significant supply shortfall starting around the middle of the decade, as there aren’t enough new projects to keep pace with the expected boom in demand. by converting energy away from fossil fuels.
In a speech at a gala dinner in Singapore this week, Maximo Pacheco, president of Chile’s state-owned co-operative Codelco, said he expected a short-term surplus. But he warned: “In the medium term, the reality will be the opposite – demand will outstrip supply.”
–With support from Archie Hunter and Mark Burton.
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