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The world's largest copper producer's net profit plummets by 50%. In the midst of a copper crisis, where is the spring?

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2022-11-04 20:40

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Due to the decline in copper prices and a decrease in some copper mine production, Codelco, the world's largest copper producer, has released an unsatisfactory performance report. In the first three quarters of this year, Codelco's copper production was 1.06 million tons, a decrease of 10% compared to the same period last year, and its pre tax profit decreased to 2.606 billion US dollars, a year-on-year drop of 50.4%.
 
 

 

 

In recent months, copper prices have been under sustained pressure due to the strong US dollar and increasing market concerns about a global economic recession. The copper price is currently around $7400 per ton, down about 30% from the record high of $10000 per ton in early March this year.
2022 is a year of deep adjustment in copper prices. At the beginning of the year, it was still high, but in the middle of the year, it suddenly turned downwards. The roller coaster like market makes people feel confused. Is copper really not doing well?
Enduring it may yield a different scenery.
According to a recent report by S&P Global, it is predicted that by the middle of this century, the annual global demand for copper will reach 53 million tons, more than twice the current global mining production of approximately 21.9 million tons.
Compared to traditional energy systems, renewable energy systems require higher copper consumption, with an average electric vehicle using about four times more copper than conventional vehicles. Wind farms require 4-15 million pounds of copper, while solar photovoltaic power plants require 9000 pounds of copper per megawatt of electricity produced.
There is no substitute for copper in the application of electric vehicles, wind energy, and solar energy. Therefore, without copper, the world will not be able to achieve a smooth transition from fossil fuels to green energy.

 

 
The current challenge is whether there will be enough copper supply globally to meet future demand?
During the copper mining process, it may be affected by uncontrollable factors such as severe weather, strikes, community road blockages, and technical failures, resulting in lower than expected copper production. This year is a great 'testimony'. Firstly, the Las Bambas copper mine in Peru, where Minmetals Resources is located, was obstructed by surrounding communities, resulting in production stoppage. Its leased mine in Nambulwa, Congo, was occupied by armed personnel
This year, some of the world's largest copper miners have reduced their annual production expectations, with BHP, Rio Tinto, Anglo American, First Quantum Minerals, and Glencore all lowering their production estimates.
CRU, a commodity research company, expects that without new capital investment, over 200 copper mines will be depleted by 2035. With the increase of mining costs, the future increment of existing mines will be limited.

 
 
In terms of exploring new copper mines, the discovery and development of new mineral deposits are becoming increasingly difficult and expensive, and obtaining approval for new projects is becoming increasingly difficult and time-consuming. In the past few years, there has been insufficient capital expenditure on copper mines, resulting in a significant decrease in the number of new copper mines added in the long term.
From the perspective of investment and projects, 2022-2025 is a big year for global copper mine release, followed by a gradual slowdown year by year. Fitch Ratings predicts that from 2022 to 2031, the average annual growth rate of global copper mine production will be 3.2%. From the progress status of new mining projects, it is difficult to see large-scale mines with an annual output of over 300000 tons after 2023, mainly consisting of small and medium-sized mines.
 

 

 
 
According to Fitch Solutions' country risk and industrial research team, global copper production is expected to increase by 7.3 million tons by 2031 due to the commissioning of some projects in Chile, China, and the Democratic Republic of Congo, which is far from meeting the growth in copper demand.
In addition, scrap copper will also play a greater role in meeting future demand. A new report by research firm Wood Mackenzie estimates that over one-third of consumption comes from secondary recycling, and this contribution may be even greater as recycling rates increase. But in the near future, it cannot solve the overall supply challenge.

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