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Copper, a key raw material, the ‘new oil’ and the barometer of a potential recession

As a result of the expected increase in demand for this metal for wiring electric cars, solar panels or hydrogen batteries, Goldman Sachs concluded that “copper is on an inevitable path to $15,000 a ton.”

But the current situation is very different. The price is around US$7,000, having fallen rapidly from the US$10,000 it surpassed in May.

The reason for this correction is that, despite its good prospects for the future, copper is still a barometer of cycles, depending above all on large industrial consumers. In fact, he is known in the market as Doctor Copper for his ability to predict the health of the global economy. Goldman’s own analysts admit, in a July note that reads more conflicting action, that the plunge in the value of the metal reflects “pessimism about growth prospects.”

The impact of the war in Ukraine on energy supply, which could particularly affect European industrial customers, and the maintenance of various restrictions against Covid in Chinaexplain the fear among investors of a recession that would harm copper consumption in sectors such as metallurgy or automobiles.

Because of this potential effect on demand, we have overlooked the risks to supply that could arise from the conflict unleashed by Russia in Eastern Europe. Directly, this country produces a million refined copper each year, which represents about 4% of the global supply. The main destination for this material is China, a flow of around 400,000 tonnes per year which does not appear to have been affected by the sanctions.. The Netherlands is the second largest importer, but much of the copper going to this country is also loaded in Rotterdam to be sent to Asia.

According to analysts, a potential recovery in China will be more important to the rebound in copper prices than the resolution of the conflict in Europe.

But once these circumstantial factors are overcome, the biggest factor in the medium and long term will again be the increase in demand from new sectors. In a report, Standard & Poor estimates that copper consumption will double from the current 25 million tons to about 50 million tons in 2035, rising to US$53 million in 2050.

“Copper, as an electrifying metal, is essential to energy transition plans,” S&P economists argue. “Critical technologies for this process, such as electric vehicles, charging infrastructure, photovoltaic solar panels, wind turbines and batteries based on fossil fuels, require much more copper. The rapid global development of these technologies, especially electric car fleets, will create , a huge increase in demand for copper, which will continue to be vital to other sectors of the economy”.

The problem is, if this jump in metal purchases is confirmed, it will come from the supply side. S&P calculates that there could be a production shortfall of 9.9 million tonnes per year in 2035, a calculation based on the maintenance of current trends in mining capacity and material recycling.

“In the 21st century, a copper shortage could emerge as a destabilizing international security threat. The shortage will put enormous pressure on supply chains and could be reminiscent of the 20th century oil scramble, although more concentrated height of production.”

Countries of production
90% of mineral extraction corresponds to five countries: Chile, Peru, China, the Democratic Republic of Congo and the United States. By company, the most active are the Chilean state-owned Codelco and the multinationals BHP, FreeportMcMoran and Glencore.

Within the sector, Spain is trying to return to being a significant player on the international scene, with production in Andalusian mines that are already exploited by the Romans. The main deposits in production are Minas de Aguas Teñidas (Matsa), which has just been purchased by Sandfire Resources; Riotinto, which is controlled by Atalaya Mining (in which Trafigura participates); and Las Cruces, from First Quantum Minerals.

The protagonists of the sector
A great source of income for Chile: the Chilean state company Codelco is the largest producer of copper in the world, extracting 1.72 million tons of this metal in 2021, which allowed it to invoice 7,394 million dollars. The new president of the Republic of Chile, Gabriel Boris, appointed Máximo Pacheco as head of the corporation last March.

Split to rely more on metals: among private mining companies, the Australian giant BHP Billiton is the heaviest in the copper sector, producing 1.7 million tons per year, close to Codelco figures. Last June, the group successfully merged its oil production business with Woodside, becoming more dependent on the metals business.

A bet of 1,600 million for Spanish mines: the high price of copper allowed the recovery of various Spanish mines. An example of the new potential was the purchase of the Matsa deposit, in Huelva, by the Australian company Sanfire Resources, which paid 1,600 million to Trafigura and Mubadala last year. The other deposits in operation in the same area are Riotinto and Las Cruces.

Copper output from Huelva to the world: Another international copper giant is Freeport McMoran, with production similar to that of Codelco and BHP. In addition, the US company owns the Atlantic Copper smelter in the port of Huelva, which allows a million tons of ore mined in Spain and other countries to be refined for sale to the group’s customers.

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