Copper fundamentals support current price levels | Hotter Commodities
Current copper prices are appropriate, based on existing supply-demand fundamentals, the chief executive officer of Chilean miner Antofagasta has said
According to Iván Arriagada, in an interview with Fastmarkets on Wednesday, April 19, the continuing risk to supply, including revisions by itself as well as by major copper producer Codelco, are a key part of the picture.
“Despite the fact that we’ve got some new projects coming onstream with fresh copper, we see that supply is going to be tight with respect to demand, and therefore the market will be in a small deficit this year,” he told Fastmarkets during the annual CESCO week in Santiago, Chile.
“We expect to see global demand growth for copper of 2-3% this year. For 2023, the fundamentals of supply and demand are supportive of the type of price levels that we’re seeing now,” he said.
His view of a deficit was widely echoed by industry participants. Fastmarkets analyst Andrew Cole has forecast that the global refined copper market will be in a 340,000-tonne deficit in 2023.
But Arriagada said that this would probably change in 2024, with the market moving from balance to in-surplus when new projects come onstream, before switching back to a deficit market once again in 2025 and 2026.
Three-month copper prices on the London Metal Exchange were currently around $8,900 per tonne, down from the all-time high of more than $10,700 per tonne seen in March 2022.
The price decline, still high on a historical basis, came against the backdrop of an uncertain macroeconomic outlook dominated by high inflation and interest rate rises, along with concerns about the stability of the global banking system and questions over Chinese growth.
According to Arriagada, volatility was likely to remain a feature of the market, although efforts by western governments and central banks to ensure a soft landing were working.
“That means cyclically, while there needs to be an adjustment to bring down inflation, that adjustment should not translate into some form of deep economic contraction,” he said. “That soft landing provides a base for commodities and especially copper to continue to grow, particularly in the developed world.”
Arriagada said that China has seen improved economic prospects since ending its zero-Covid policies, with forecasts for growth rising to 4-5% in 2023 from 2% last year.
“While there may be some turbulence, basically what we’ve learnt from China’s economic policy in the past is that the country is quite steady in being able to reinject activity into its economy when it is committed to doing so,” he said. “This makes us more confident of the signs we’re seeing in China.”
Despite softer copper premiums in China, Arriagada said that physical uptake of metal was still “quite robust” and that the company had seen requests for potential sales contracts beyond its traditional channels of sales in the country.
Permitting process overhaul needed to accelerate projects
An overhaul of the system of allocating permits to mining projects is necessary to eliminate the long lead times that many companies face when attempting to develop operations, the chief executive officer of Antofagasta Minerals has said.
This is true not just in the company’s home state of Chile but also in the US and other mining centers across the world, Iván Arriagada told Fastmarkets in an interview on Wednesday, April 19.
Speaking during the annual CESCO week in Santiago, Chile, Arriagada said that the Chilean government was to consider a proposal in the second half of this year to revisit the environmental permitting process.
“[The proposal] hasn’t been fully committed to yet, but it is under consideration, and the pressure is building for the conversation to take place,” Arriagada said. “We just want predictable and reliable permitting systems that are expeditious, while requiring companies to meet the highest standards.”
The protracted permitting process has long been at odds with the drive to secure the critical minerals necessary for energy transition.
Last year in the US, two leases at Antofagasta’s Twin Metals project in the state of Minnesota were canceled by the federal government, leading the Chilean mining company to consider – and subsequently to take – legal action.
The cancelations were ordered on environmental grounds but came before a full environmental review process had been completed.
“We’re focused on consolidating the mining property by means of recovery of some of the licenses that were not renewed, and we think their non-renewal is contrary to the terms of those leases,” Arriagada said.
“This is another example of the rhetoric around critical minerals being [in place], but we’re not seeing that on the ground,” he added. “The ore body is there and very attractive, it’s polymetallic, large, and should be one of the ore bodies to be developed in the US, but we have to wait until the process is complete.”
According to Arriagada, the US Inflation Reduction Act contains a number of provisions designed to accelerate the approval of renewable energy projects. These would include certain key metals, but copper - used in wind turbines and solar panels - is not one of them, a move that Arriagada said was surprising and would probably evolve.
He noted that the US uses a process called Fast-41 to fast-track the permitting procedure in the infrastructure sector. “That’s the type of model the US may be thinking of within the IRA,” he said, “to provide more expeditious review of projects.”
Antofagasta open to M&A, but must be a value-driven choice
Antofagasta Minerals is keeping its options open when it comes to potential mergers and acquisitions but would stick to the Americas region and only opt to pursue value-driven alternatives, the Chilean company’s chief executive officer said.
“We will certainly continue to look at M&A. We haven’t changed our view that we want to grow in copper, regionally, within the Americas, so if there were opportunities in that space, we would assess them against other opportunities or capital allocation,” he said.
“We’ve got large projects, and it’s easier for us to grow in our backyard – and therefore capital will compete. But certainly, we’re always open to looking at M&A options and alternatives, but it needs to be a value-driven choice,” he added.
His comments come against a backdrop of deals, including BHP’s acquisition of Oz Minerals and Hudbay Minerals’ purchase of Copper Mountain.
Glencore has also proposed to merge with Teck Resources, a deal that the Canadian miner has rejected.
Arriagada said that the interest in copper demonstrated its attractiveness as an investment and the potential synergies that combinations of companies can sometimes provide.
“The revival of M&A highlights the attractiveness of copper and therefore the willingness and desire that some have to position themselves in the copper space when they are not strong there,” he told Fastmarkets.
“It validates the thesis that copper is a key metal and one that will play a key role, and therefore people want to get exposure to it,” he said.
“A second motivation is the potential to unlock value by accelerating the development of these resources; there may be synergies allowing infrastructure to be shared, or water that benefits the development of a certain resource,” he added.
To some degree, he noted, it is a response to start bridging the supply gap that exists currently in copper. The shortfall comes at a time when demand for copper is rising as a consequence of its role as a key enabler in the energy transition, where it is used in charging infrastructure and batteries for electric vehicles, power grids and renewable energy such as wind or solar.
“We’re very keen, along with those that are active only in copper and have a large resource base, to continue to develop our resources,” Arriagada said.
The company is finishing the construction of the project to expand the concentrator plant and add a desalinated water plant and a water pipeline at its Los Pelambres mine north of Santiago. It is also considering the construction of another concentrator at its Centinela mine in the Antofagasta region of Chile.
“Organic growth and development of resources is high on the agenda to bridge the supply gap,” he said.
Antofagasta produced 646,200 tonnes of copper in 2022 and has guidance for 2023 of 670,000-710,000 tonnes, with improvements at Los Pelambres leading the increase.
But all of this depends on key enabling factors including fiscal stability and regulatory certainty, Arriagada noted.
“It is a complex equation, but we know how to develop resources and we’ve done that in the past, and therefore we just need to ensure those enabling conditions come together to allow us to move forward,” said.
Chile has been working to draft a new constitution, which will be voted on in December, along with a new taxation regime for the mining industry.
In Hotter Commodities, special correspondent Andrea Hotter covers some of the biggest stories impacting the natural resources sector. Sign up today to receive Andrea’s content as it is published.