Monsters of Rock: In case you didn't think we were short on copper, here's Codelco

World’s biggest copper producer eyes 8Mt deficit by 2032
Chairman of Chile’s Codelco says new projects are not emerging fast enough to replace closing mines
Lithium miners the party poopers as mining stocks fall

How deep could we be in the proverbial hole trying to find enough copper to power the energy transition?

Chile’s Codelco, the world’s biggest producer, thinks the size of our copper hole could be an astonishing 8 million tonnes by 2032.

That deficit is almost 2Mt higher than the most pessimistic supply scenario outlined in research by S&P Global a couple months back.

Maximo Pacheco said while there is the potential for new developments to lead to short term surpluses to 2026, from that point too many existing operations will be running short of ore, with little investment in major new copper mines on the horizon.

“Considering that some copper deposits are in the process of stopping production and that other projects are in the process of starting operations,” Reuters quoted Pacheco at Asia Copper Week.

“It is estimated that the deficit will be almost eight million tonnes in 10 years.”

According to reports from Bloomberg and Fastmarkets, Codelco is having its own copper supply issues, saying it could be down 200,000t due to maintenance delays at its Chiquicamata project.

Add that to a long list of issues for supply of the commodity, with Chile’s copper output stagnating and falling for three straight years to 5.6Mt in 2021 after peaking at 5.83Mt in 2018.

Codelco produced 736,000t of copper metal through the first half of 2022.

It takes two to contango

Until recently copper and other industrial metals saw warehouse inventories collapse to historic lows, with estimates of copper available on the LME and other major exchanges dropping to between 3-5 days.

They have picked up slightly in recent days, mainly in Shanghai, with the market moving from backwardation into contango.

That means prices paid for base metals in the future are higher than prices paid for immediate delivery, a sign physical demand has slipped.

But copper is defying some of the negative indicators for industrial metals, with investors going long like a wide receiver running to catch a Hail Mary from strong-armed quarterback.

“Macro indicators for industrial metals remain weak. Manufacturing is slowing in developed markets, while PMIs returned to expansionary territory in China,” ANZ commodity strategists Daniel Hynes and Soni Kumari said in a note.

“Consumer confidence fell sharply across most major markets.

“Micro indicators are weakening too. Copper inventories at SHFE are rising while physical premiums are retreating. Cash to 3m spreads for all major metals have moved into contango, showing looser market balances.

“Nevertheless, investors are showing some interest in copper as long positions are building.”

But investors with long term horizons are still bullish on copper.

Just ask BHP (ASX:BHP), which offered $9.6 million cash for mid-tier South Australian copper miner OZ Minerals (ASX:OZL) last week.

Goldman Sachs thinks a potential expansion of its Olympic Dam smelter, incorporating OZ’s Prominent Hill and Carrapateena and its Oak Dam discovery, could up BHP’s SA copper output to 550,000tpa but would come for an eventual total investment of US$5-7 billion.

Lithium miners lead materials into Friday sinkhole

It’s not often this happens, but those normally fun-loving lithium miners were a real drag today.

The large cap decliners were led by the big four lithium stocks Pilbara Minerals (ASX:PLS), Allkem (ASX:AKE), MinRes (ASX:MIN) and IGO (ASX:IGO), all down more than 5% with Allkem shedding more than 8% to hit a two month low.

Lithium stocks have been hurt by (heavily contested) analyst predictions the market could enter oversupply, driving down prices over the next couple years.

S&P Global was the latest to say there was a “lack of momentum” for prices to go higher than their currently obscene levels.

Bearish sentiment dragged down the big iron ore miners too, with investors concerned about rising Covid cases in China, the world’s biggest demand centre for commodities despite the Singapore contract lifting almost 1% to US$96.60/t.