Ground Breakers: A hero is coming for ailing copper in the second half, CBA says

Copper prices have dropped for five consecutive weeks on weak Chinese and Euro demand
CBA metals guru Vivek Dhar says Chinese infrastructure spending and supply disruptions should support prices in H2 2022
BHP executive confirms world’s biggest miner’s disinterest in 2022’s most popular commodity, lithium

Copper was the metal du jour for a brief time last year when it shot to record prices upwards of US$10,700/t, spurring a wave of exuberance.

That included Goldman Sachs dubbing the familiar base metal “the new oil” and predicting decarbonisation could send prices to US$15,000/t as demand for copper wiring in new electric network infrastructure and EVs gathered pace.

Even today big copper hits are sending explorers on a tear as ‘the electrification of everything’ drives investor interest in the red metal.

Case in point – Carnaby Resources (ASX:CNB), up 225% over the past year on a potential copper discovery in Queensland.

It and minority JV partner DiscovEX (ASX:DCX) were up big this morning after announcing a “stunning hit” of 68m at 2.4% copper at its Greater Duchess project, well within exploration expert Jon Hronsky’s definition of a good copper strike.

Right now though the Russian war in Ukraine has sent the old oil back into the spotlight while copper has suffered five straight weekly declines on demand disruption from China’s hard-line Covid lockdowns.

Those are showing little sign of easing yet, with China’s leadership affirming Xi Jinping’s controversial Covid Zero strategy. Copper was trading at US$9416/t as of Friday.

But hang on, could help be on its way?

Yes, says CBA metals expert Vivek Dhar

China is responsible for around 55% of downstream copper demand and its lockdowns have taken a toll on industry, infrastructure and property in the world’s second largest economy.

Europe, wrapped up in an energy crisis exacerbated by Russia’s war with Ukraine, is also responsible for 13% of copper demand and seeing signs of an economic slump, with Germany’s factory orders and manufacturing output lower than expected in April.

Commonwealth Bank’s mining and resources guru Vivek Dhar says despite recent weakness, support is on its way for the copper market in the second half of 2022.

While it may be the overriding investment theme in the metals market, this won’t come from decarbonisation just yet.

“Electricity networks are the most important exposure (~21% of global copper demand) given that more transmission is required to connect decentralised renewable power to the grid,” he said.

“However, low carbon generation (solar PV, wind, other renewables and nuclear) and EV and battery storage are far less important for now (2.6% and 0.5% of global copper demand respectively in 2020).

“But spending on a decarbonised economy outside China will likely face setbacks from aggressive monetary policy through H2 2022 and 2023.”

Rather, China’s commitment to ramp up infrastructure spending once the lockdowns unwind looms as the panacea for copper’s recent malaise.

In particular, China plans to increase investment in its electricity grid by 25% in 2022.

“President Xi Jinping’s urging for increased infrastructure investment at the Central Financial and Economic Affairs Commission meeting on 26 April could see China’s copper demand impulse lift through H2 2022,” Dhar said.

“Even before the latest lockdown, the State Grid Corporation of China planned to lift spending directly on the grid by 25% in 2022. Electricity networks account for ~36% of China’s copper demand. Stabilising the property sector (23% of China’s copper demand) is also likely be positive for China’s copper demand.

“We believe China’s rising copper demand impulse in H2 2022 will drive copper prices higher later this year.”

Supply disruptions in Chile and Peru are also a ‘key upside risk’. MMG’s 400,000tpa Las Bambas mine in Peru is a case in point, where activism from traditional owner groups has stalled production in recent weeks, taking around 2% of global mined supply out of the market.

“A key upside risk to prices is supply disruptions,” Dhar said.

“Glencore, Anglo American and BHP have reported double‑digit year‑on‑year falls in copper output in Q1 2022.

“Social unrest has also weighed on copper supply in Peru (~13% of mined copper supply).”

BHP brings Kambalda nickel back, but still says no to lithum

The focus is intensifying at the world’s biggest miner on “future facing commodities” as it hives off its petroleum and coal mines in favour of investments in battery metals like nickel and copper, but one it’s been loathe to dip its toe into is lithium.

That is despite its main competitor Rio Tinto’s (ASX:RIO) excitement about the commodity. It’s spent US$825 million on a brine project in Argentina and still wants to find a way to plunge US$2.4 billion into the Jadar mine in Serbia despite its rejection by the government amid community protests this year.

While many in the market have been surprised at BHP’s (ASX:BHP) aversion to the booming battery ingredient as prices have soared 10 times over in the past year, its president of minerals in the Americans Ragnar Udd doubled down on the stance in an interview with Bloomberg.

Udd says BHP continues to see lithium’s rise as a short term thing.

“We recognise that at the moment there’s short-term supply-demand conversations,” Udd was quoted as saying. “How that plays out over the next 20 or 30 years, I don’t think it will last.”

Meanwhile, with nickel prices currently over US$30,000/t and holding around those levels for the past month since a strange and short-lived squeeze to US$100,000/t in March, the timing of the revival of the Kambalda nickel province could not have been better.

Mincor Resources (ASX:MCR) announced today that BHP has started processing ore into concentrate at the Kambalda Nickel Concentrator for the first time since 2018.

That will see Mincor enter cash flow from its reborn Kambalda nickel operations in June, completing the six-year journey to rebuild the historic mining province.

BHP Nickel West prez Jessica Farrell said the offtake agreement would enable BHP to employ around 40 people in the Kambalda region, including greenhorns and trainees.

“As the world transitions to a decarbonised future, BHP’s future facing portfolio, including our nickel assets, will be essential to meet growing demand in the global battery and electric vehicle market,” she said.

RBC’s Paul Wiggers de Vries said it was a “key milestone” for Mincor’s de-risking of its Kambalda project.