Copper crisis: we need mines, not mergers

Today the copper market is floundering in the waves of speculation driven by the artificial intelligence bubble and the hypothetical demand for metals for the energy transition. High global inflation and the lack of supply has pushed the price growth of the red metal to a point peak of over 11,000 dollars per ton which has disconcerted the moves of many speculators on international markets. Although it is reasonable to expect high volatility in the short term, speculation will not give up trying to extract short-term profits, it is also appropriate to ask ourselves whether “the train has left the station” and the upward price trajectory is only just beginning.

Better to be cautious. The suspicion that there is a cooling in some factors that drive the current frenzy of the copper market is based on a series of objective data. Having passed the election year, 2024 for the first time in history will see, from the States Together with India, more than 4 billion people called to the polls, practical revisions of the utopian “Net Zero” renewable energy targets, used by politicians for electoral purposes, and subsequently revised in more pragmatic and achievable terms, are possible. According to Goldman Sachs the development of “sustainable mobility” is faltering and predicts a contraction in electric vehicle sales volume of 2% year-on-year.

The Chinese industrial recovery remains weak and there is still no concrete solution to the real estate bubble: the result is that the Chinese manufacturing PMI index began to contract again in May in the wake of a decline in orders, particularly for exports. Overall, despite the introduction of favorable policies, consumption has remained weak, causing copper inventories in Shanghai Metals Market warehouses to continue to reach new highs for the year, over 440,000 tonnes at the end of May, driven by production Chinese refined copper.

All conditions that confirm the cooling that is occurring in the prices of the red metal, albeit in a context of optimistic prospects for medium and long-term demand, which will support copper prices, preventing them from continuing to fall significantly. It is more difficult to believe the more than bullish, science fiction positions of traders like Andurand, according to whom the price could reach 40,000 dollars per ton in the next four or five years.

That said, even if the projections for artificial intelligence and renewable energy end up being only half of what is currently expected, these are technologies that are destined to steadily increase the demand for raw materials. In particular, Large Language Models (LLMs) such as ChatGPT will increasingly find greater application than current ordinary web searches, driving the demand for new data centers. To this picture add that also the defense copper demand becomes more and more significant.

Last month, it was based on these considerationsBHP's £39 billion takeover bid for Anglo American. BHP had its eye on Anglo's valuable copper business, and was planning a global copper giant producing two million tonnes per year. But its shareholders felt it wasn't worth enough to take on even some troubled assets like Anglo's South African operations, Amplats (Anglo American Platinum) and Kumba Iron Ore. Furthermore, the timing of the public offering was probably not the happiest: the complex situation of the political balance in a South Africa at the polls could not clash with the electorate of the country's platinum mining belt, where Amplats is still a large employer today. of work.

But BHP's offer for Anglo American should also be seen as a sign that it is more difficult and expensive to build a new mine than to buy a rival that already has working copper mines in its portfolio. Even if it does not constitute an absolute guarantee: resource nationalism is another of those fault lines along which globalization is fracturing and what happened at the end of 2023 to First Quantum with its Cobre Panama mine remains a warning for anyone .

Panama's Supreme Court ruled that First Quantum's contract, which allowed it to operate its giant Cobre Panama copper mine for the next 20 years, was unconstitutional. The consequences will be multiple: from 40,000 direct and indirect jobs lost, to the country's GDP, which will suffer a 5% contraction, to First Quantum's financial losses, estimated at around 10 billion dollars, which it will only be able to bear thanks to the financial prudence that has characterized the actions of all the main mining companies in recent years. The heaviest consequences could be for the copper market: Cobre Panama represents around 1.5% of global production of the red metal.

The real problem of the mining industry is the ideological and contradictory environmentalism of people like Greta Thunberg or Leonardo Di Caprio who, in their eagerness to support the Panamanian protesters, do not explain with which metals the Green Deal can be achieved. Part of this category are other illustrious figures, starting with Joe Biden and the Democratic leaders of the US Congress who in recent decades have tried to dramatically complicate the authorization processes of the main mining projects, succeeding, in most cases, in their aim.

A textbook case is the Resolution Copper underground mining project in Superior, Arizona owned by Rio Tinto and BHP. The mining project has been at the mercy of the National Environmental Policy Act (NEPA) and other relevant environmental statutes since 2013, and still today, after 11 years edover 2 billion dollars in investments, it is not yet clear if and when the project will ever see the light. A project that would allow the country to be supplied with approximately 450,000 tons of copper per year for the “green” transition desired by President Biden.

The Green Deal fights a conflict within its own promoters, environmentalists who, after spending decades fighting mining companies of all kinds, from hydrocarbons to metals, today find that support for climate action is direct support for mining companies. Welcome to this new, old world where the metal is brought to the markets by mines and not by mergers.