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October 1, 2020: Copper Supply Faces Struggle To Keep Up With Growing Demand - S&P

Copper Supply Faces Struggle To Keep Up With Growing Demand

S&P Global Market Intelligence, October 01, 2020

A deficit in the copper market is set to deepen over the next several years as supply of the widely used metal struggles to keep up with strong demand from the power and construction sectors, compounded by the proliferation of electric vehicles.

“Refined output is expected to increase by 4.3% year on year to 24.7 million tonnes in 2021 after decreasing by 2.1% to 23.6 Mt in 2020, primarily as a result of disruptions caused by the coronavirus pandemic,” S&P Global Market Intelligence commodity analyst Thomas Rutland said.

Work stoppages due to measures designed to curb the spread of the coronavirus have stalled existing capacity and have delayed investments with long-term repercussions for supply. Chile has been the worst affected followed by the U.S. and Peru.

The second quarter bore the brunt of disruption to refined and mined production, but global output should be similar to 2019 levels in the third and fourth quarters, according to Rutland. “Beyond 2020, we forecast that consumption will outstrip production over the period to 2024, resulting in a growing refined market deficit and increasing copper prices.”

“Refined production output will be hindered during this period by slowing mine production growth rates unless there is significant investment in the copper project pipeline,” Rutland added.

Fitch Solutions expects the copper market deficit to ease from an estimated 416,000 tonnes in 2019 to 299,000 tonnes in 2020 before widening again from 2022, according to a mid-September report. The analytics provider forecast a shortfall of 489,000 tonnes in 2024, rising to 510,000 tonnes in 2027.

Mine in Northern Chile

As of late September, 2.9% of annual global supply remained suspended due to the pandemic, with Chile and Peru accounting for more than half of the missing 702,000 tonnes of output estimated for 2020, VTB Capital analysts wrote in a Sept. 28 note. In the U.S., 217,000 tonnes of capacity was shuttered, according to the Russian government-controlled bank.

This leaves miners playing catch-up to develop future supplies of the metal as demand was only mildly impacted by the downturn caused by the pandemic. The price of copper has climbed 6.9% since the start of 2020, defying a massive slump in March, and stood at US$6,574 per tonne as of Sept. 29.

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These historical resource estimate models are based upon historical resource estimates prepared by John Thornton in 2011. While, in the opinion of Dane A. Bridge, author of the revised NI 43-101 standard technical report, Geology, Mineralization and Exploration of the Santo Tomas Cu-(Mo-Au-Ag) Porphyry Deposit, Sinaloa, Mexico dated April 21, 2020 (the “Report”), reliable estimation practices were used, in order to upgrade or verify the historical estimations, resampling and assay of historical drill samples, twinning of historical drill holes, and a new program of regularly spaced drilling is required. No qualified person has undertaken sufficient work to classify the current mineral resources or mineral reserves upon which these models are based and the Company is not treating the estimates as current estimates of the mineral resources. The Company gives no assurance that either these models or the historical resource estimates upon which they are based are accurate, and does not undertake any obligation to update the models or to release publicly any update or revisions of the resource estimates except as required by applicable securities law. The reader is cautioned not to rely upon these models or the historical resource estimates upon which they are based.

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