Last Wednesday we had a great discussion with Joe Mazumdar, (analyst and editor at Exploration Insights) and Dr. Ryan Long (analyst at Proactive Investors) on the topic of Copper. Have you seen how Copper producers have performed this last year?
It has been a great year for Copper indeed, and our speakers explained why:
On the demand side, Chinese demand accounts for over 50% of worldwide copper demand. China was the first country to rebound from the first wave of COVID-19 and this spiked the demand for the metal on Q2 2020.
Even though copper is mined around the world, most of the smelters that refine copper are in Asia, and the majority of them in China. With mines around the world shutting down early this year because of the pandemic, and China recovering first, demand increased while supply decreased. The contraction is worldwide supply is calculated around 2% compared to last year.
Short Term: Joe made reference to China's aggressive 5 year growth plan for 2021-2025 (you can read about it here), which will evidently involve a lot of copper use among data centres, clean energy adoption to make the country carbon neutral by 2060, huge infrastructure plans, and more. So even with Joe Biden's efforts to bring the United States away from the use of fossil fuels and towards a renewable powered economy, copper demand from China will overshadow any other demand movers.
Mid-Long Term: Shifts in technology and worldwide moves towards the use of green energy will further increase demand for copper.
Budgets for Copper exploration worldwide peaked in 2012 at $4.7B. We are seeing a decrease in budget by 60%, with only $1.7B spent in 2020.
Less juniors explore for Copper than gold or silver. Copper is more expensive to explore for because of the size a project needs to be to be economic to mine. It needs more drilling, and usually to go deeper.
The world will be challenged to fill the supply deficit. It usually takes 7-10 years for a discovery to get to a production stage. Technical studies, drilling, permitting, financing take time. There are not enough copper development projects to fill the need we will face in the next 20 years.
Copper prices have surged 60% in the last 7 months. Will this time match the boom we saw in 2009-2011 of 256%? Ryan Long believes so due to the weak U.S. dollar and low copper inventories. He pointed out that reserves are down 60% from April 2020, and that we should look at the LME (London Metal Exchange) as a sign of the health of the copper market (it's the largest depository of copper stocks globally). He also pointed out that the roll out of the COVID-19 vaccines should bring an increase in industrial activity worldwide.