Copper prices are rising again

Saad (0:01)

Hello folks, you're tuned in to Finshots Daily. I'm Saad. If you're new here, welcome. If you're returning, welcome back. In today's episode, we give you a simple explainer on why copper prices are rising.

Before we head to the story, here's a quick word from team Ditto. We're hosting a free two-day insurance masterclass that helps you build real financial security by understanding health and life insurance the right way. Right from understanding how to protect your family, choosing the right cover amount, and knowing what truly matters during a claim, to how hospitals process claims, the mistakes buyers usually make, and how to choose a policy that won't disappoint you when you need it the most. We will explain it all in plain language. Head to the link in the description and save your spot. Now to the story. Copper prices have crossed $14,500 per tonne on the London Metal Exchange or the LME, and prices seem to be moving in only one direction right now. Up. So far, copper prices have risen 16-17% in 2020-6 and nearly 48% over the last one year. And to understand this rally, we have to start from the very beginning. That is, where does copper come from?

See, Chile is the world's largest producer of copper, accounting for nearly a quarter of the global output. It also sits on the largest reserves at around 180 million tonnes, which represents roughly 18% of the global total. To put that into perspective, that's nearly double Australia's next largest holder.

After that, you also have Peru, the Democratic Republic of the Congo, China, and the US, which are also major copper producers. Together, they produce about 20 to 25 million tons of copper a year.

But copper production is now beginning to decline. For instance, Chile's copper production is expected to fall 2.6% this year to 5.3 million tons.

The reason? Well, a few troubles are brewing in Chile's copper mines. To begin with, last year, a fatal rock burst and tunnel collapse at El Teniente, Corelco's flagship mine and the country's largest copper mining company killed six workers and halted mining operations for a while. Soon after, its output dropped to a 25-year low. And as if that wasn't enough, even after partially reopening, it recently had to stop expansion work in a section of the mine after discovering very dangerous seismic risks. This means that over the next five years, the mine will produce 3 lakh tons or less of copper, compared with the 3.56 lakh tons produced before the incident. Besides, Corelco itself is in the middle of changing how it mines some of its mines.

And this transition will temporarily reduce how much copper it can produce over the next few years. And the problem isn't limited to Corelco. Several mining companies and mines across Chile, including BHP, the world's largest copper mining company, Escondida and Spence Mines, are facing similar issues.

In general, several mines are dealing with declining ore grades, aging infrastructure, and delays in expansion projects. There's also the shortage of sulfuric acid, which, if you've read our earlier story on copper ETFs, you know is necessary for extracting copper from low-grade ores. A lot of this acid previously came from China. But recently, China halted sulfuric acid exports because it wanted to prioritize using the acid to make fertilizers needed to grow crops at home. On top of that, even sulfuric acid being transported through the state of Hormuz isn't moving quickly enough because of disruptions. But the thing is, about 15% of the global copper production depends directly on sulfuric acid availability. So not having enough naturally means less copper production in the years to come. But even as supply dips, demand for copper is rising faster. Until now, the not-so-humble metal was mainly needed for things like electrical wiring, plumbing, and electronics. But since 2022, it's used in EVs. An EV roughly needs three times as much as copper as a regular combustion engine car.

Grid modernization, renewables, and lately, AI data centers which need heavy copper busbars and cooling infrastructure has been increasing. As S&P Global puts it, global copper demand is rising from about 28 million tons to now more than 42 million tons by 2040 Data center demand alone is expected to grow from roughly 1.1 million to 2.5 million tons over that span. This combination of rising demand and falling supply is creating a copper deficit. In fact, this year alone, the world is expected to face a deficit of 1.5 lakh tons instead of 2.09 lakh ton surplus we had expected earlier, according to the International Copper Study Group, or the ICSG. And all of this gets reflected in the copper market. Copper is mainly traded on three major global commodity exchanges. There's the London Metal Exchange, the LME, the ultimate global benchmark for physical copper prices, with a vast network of approved warehouses around the world. Then there's New York's commodity exchange, the Comix, the dominant exchange for the Americas.