Copper - feedback from mining conferences in London
I worked on the buy and sell side, and have invested in copper for 25 years - I thought the summary of my meetings at two conferences in London might be of interest, would be interested in any pushback. All the best, Duncan
Feedback from 121 Mining (Nov 2024) and Resourcing Tomorrow (Dec 2024)
What is evident is that the junior mining sector has been decimated. The various reasons people give for this is that there are very few mining focused funds / the generalist fund managers that would have invested 20 years ago no longer have the mandate / and retail investors looking for outsized gains have switched to crypto / AI. Even copper projects - outside of the producers - are mostly starved of capital - to the point that they cannot pursue their drilling campaigns.
Lithium was the exception to this - the bubble in lithium prices has created an abundance of projects 'ready to go' - but I am now convinced that the only bottleneck in lithium is capital. I met one company with an asset in Argentina, and asked them what they could produce if they had unlimited capital - they said 60kt - i.e. 6% of 2024 global supply.
And it's not just them - there is a brine project in Alberta that is ready to produce 20ktpa / I met an engineer in Argentina with endless hectares next to the new ERA.PA brine DLE / Canadian oil companies could process a 300km aquifer at Leduc - and it goes on ... maybe more worryingly is the fact that there is an ocean of 0.8 - 1.5% DSO that is poised to ship if / when prices recover - and that's before XOM start in Arkansas. Clearly the space to be in this material is in the processing technology, and not the resource.
The head of exploration at a large mining company told me they had zero interest in lithium because it is 'an industrial mineral - it is everywhere'.
On copper - I am not surprised by the short-term bearish sentiment. Yesterday, Rio Tinto announced a copper production increase of 130ktpa (0.5% 2025 supply) for Oyu Tolgoi. It's instructive to recall that we owned shares in this asset at the exploration stage - twenty years ago - and it is only now generating meaningful volumes.
The twilight of the industry's expansion means that there is more metal coming in 2025 - Ivanhoe is still ramping at the world's best copper mine - Kamoa Kakula (although this may be front end-loaded), Teck has the last increments at QB, and there are a few juniors CS / SFR.AX / ERO - but on the other hand there is grade decline at Antamina / all of Codelco / Grasberg / Collahuasi. Nevertheless, it is still rational to model a (modest) surplus if you are lukewarm on demand for 2025 (although the physical market doesn't seem to be intimating this - the orange line is LME inventories).
The world's largest mine - Escondida (5.6% of global supply, 58% owned BHP / 30% Rio) - has one more good year and then they have guided to a worst case drop of 400ktpa - in itself that is 1.7% of global supply gone in 2026.
2026 is going to be very tight - I'm fairly confident production falls - with the caveat that a Cobre Panama restart could result in some more tonnage - but it is reasonable to expect that the repricing necessary to incentivize the next wave of supply in Peru / Africa / Canada is over $6.
The problem in the meantime is obviously China / tariffs. I have spent 25 years trying to figure out the best single metric for China copper demand and regardless of constant news stories about falling demand - e.g. IWCC saying demand is fading - the fact is that imports are up 3.3% through October.
Here is the relatively bearish IWCC narrative - that demand is falling from +5% to +2% p.a. as EV momentum fades, and there are signs of substitution.
However, it seems more rational to align demand with the level of imports, and that would mean that copper demand is up 3.3% YOY.
If China (14m t of demand / global demand 27m t) is growing at 3.3% then that is equivalent to 1.7% on a global basis, and anecdotal evidence from the conference, backed up by the more cautious IWCC - and by my own trip to Xining in October - is that the grid investment in China is inexorable. This is due to stressed infrastructure and stranded power. Look at the last number on this report from the National Bureau of Statistics
My worries are
1. (obviously) Tariffs. What is the worst case ? 2% hit to China GDP? However - in terms of legislation rather than invective - is the 5 seat Republican majority in the House large enough - assuming pro trade representatives - to push through 20% tariffs? (I don't know). In any event, China's principal fiscal levers for the economy are the 'new three' of renewable energy - batteries / solar / EV (currently at 50% EV penetration but mandated growth continues in order to mitigate USD/Oil dependency).
2) Scrap. According to China National Bureau of Statistics- Chinese refined output is up YTD 4.5% to October, but production of copper semis is down 1.1%. At face value this means that scrap is displacing metal, but the decline in SHFE tends to argue against that.
3) Unseen supply. There are 2 mines in Russia - Malmyzh (PD discovery 2006!) and Udokan - that ICSG have combined as +216ktpa in 2025 - WoodMac have 160k t for Malmyzh in 2025 and Udokan already ramped up - but I am unable to find a reliable figure for the supply model.
However, Chinese demand is not on my worry list (although I am looking to short vegetable oil)
My main conclusion from all these meetings - is that there could not be a starker contrast between the respective bottlenecks of capital (lithium) and resource (copper). We had a 'false dawn' in copper earlier this year - but it seems to me that this was more of a purely 'speculative' than physical rally.
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I think 2025 will be different - as regards supply/demand fundamentals - and we run out of spare capacity and drain inventory next year.
The problem is whether - in the interim - you get a global trade war that takes us back to mid $3s - but I think that with respect to the cost curve $4 is a good place to get meaningfully long (top end of cost curve is high 3s, even FCX US Q3 assets cash cost were 364c).
By the end of 2025 - certainly in 2026 - the new supply that the 2006 spike animated has run its course. Frankenstein is dead. We shifted from $1 to $4 in the last cycle and it would not be idiotic to assume that the next move is of a similar magnitude
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