Just how scarce is copper?

One of the largest copper miners announced a shift in strategy to allow investment in "tougher" mining jurisdictions. BHP CEO Mike Henry told the FT Mining Summit last week: “We know there is more copper to be found in the areas we like but it is going to be harder to find and perhaps deeper, which is going to bring different technological and financial challenges”.

It is notable that such a shift would be required considering where we are in the cycle. Exploration CapEx in mining (in general) and copper (in particular) is coming from very low levels at a time where demand from the energy transition effectively doubles the annual run-rate demand growth for several key commodities. Perhaps it is this imbalance (along with inventory drawdowns in China) which is making copper more immune to cyclical pressures this time.

“The Chinese physical copper market today is ‘really pretty solid’…inventories are declining and consumption remains strong” - Bloomberg interview with Freeport CEO Richard Adkerson

Source: Bloomberg via Yahoo! Finance.

Underpinning this demand may be China’s commitment on the carbon transition which seems to fulfil geopolitical / energy security goals. As Louis Gave noted in a recent interview:

“When Chinese politicians say they are going to do something, they have a good track record…The reason, I think they went peak carbon isn’t because all of a sudden they’ve become green and they care about the environment, it’s first and foremost because they worry about having so much energy imported from places that are, in essence, controlled by the U.S. Hence the decision, to say, ‘you know what? We’re stopping importing coal from Australia”.

If this dynamic holds, it adds another inflationary element into the mix. Let’s see.

Source: Australian Bureau of Statistics. Plots overall mining exploration capex vs mining industry gross value added.

Global copper mine project pipeline. Source: Glencore 2021 AGM presentation.

Aggregates Codelco, Antogofasta, BHP, Freeport, and Southern Copper. Source: Company reports; 2021/2022e use Fitch.