For well over a decade, the copper industry has been united in its conviction that the long-term outlook for the commodity is outstanding. For most of the time the key element of the thesis has been the supposed difficulty in starting new mines. Companies talk about the altitude challenges, the water challenges, the grade challenges, the permitting challenges, and so on.
To some extent the market needed a narrative to explain why, in the space of a few years between 2004 and 2007, industry thinking around normalised copper prices jumped from “a bit below $1.00 per pound” to “somewhere above $3.00 per pound”.
Such a rapid change in thinking, in such a short period of time, shows a remarkable flexibility in the industry and market thinking. To be fair, a similar jump was seen in most commodities, for example the oil industry jumped from $20/bbl to $75/bbl, the gold industry from $300 to $1200/oz. And yet markets just moved on, without ever properly examining why everything changed so much so soon.
But even amongst this volatility, copper stands out for the strength of belief in copper’s future. In recent years, the supply side arguments have been augmented on the demand side, as the task of the energy transition has clarified. It is a relatively straightforward thing to calculate that to achieve anything near net zero in 2050, the demand growth for copper is going to be about double the historical trend growth of 2-3%pa. “If copper supply struggles to keep up with 2-3% demand growth, how can the industry possibly keep up with 5%?”.
You can be sceptical about the energy transition and still see lots of room to be optimistic about copper demand.
The copper market is currently absorbing a handful of large new projects. Ivanhoe’s Kamoa Kakula, Anglo American’s Quellaveco and Tecks QB2 are all large new mines and have all recently come onstream. It’s the biggest supply delta in a decade. And yet the copper price hovers around $4.00/lb.
The next generation of large new mines, if there is one, is many years out. Visible inventories of copper are at historic low levels. It sure looks interesting.