In a new report, analysts at Bank of America (BofA) Global Research say they expect the copper market to return to deficit from 2025 after the current wave of project construction is completed.
While global copper production should rise by 7.7% in 2023 after an expected deficit in 2022, risks are skewed to the downside, the bank says, given the inefficiency of building new copper mines in recent years.
“Despite the fact that the portfolio of upcoming projects is well visible, the growth in activity is fraught with drawbacks,” bank analysts say. “Indeed, many of the projects currently under development have been under development for nearly three decades, and with exploration activity relatively limited in recent years, the increase in supply could disappear from 2025.”
BofA sees a number of issues holding back production growth. They were reflected in a presentation by Edgar Blanco Rand, vice minister of mining in the previous government of Chile, during the recent LME week.
The official presented a portfolio of projects in Chile to be implemented by 2029 worth $74 billion to reach a total production of 7 million tons. Focusing on copper, Edgar Blanco emphasized that since 2000 production has remained unchanged at about 5.7 million tons, after a decade of rapid growth that began in 1990.
“This implies a capex intensity of around $50,000/ton, well above the $10,000 to $20,000/ton range seen in recent years. As an aggravating factor, the investment must be large enough to compensate for about 1.5 million tons of production losses,” the bank said.
According to BofA, 10 projects will account for 58% of total copper production growth in 2022.
This confirms the bank's analysts' view that extensions are highly concentrated, which has two implications. First, operational problems at just one or two sites can seriously affect the market balance, meaning that the trajectory of these 10 mines is critical. Secondly, according to BofA, almost all additions are carried out by operators with excellent experience, which reduces the risk of failures and underdeliveries.
