Copper Prices Hit Record High on Supply Disruptions

Demand for the energy transition metal remains strong, helping price action along with supply hiccups, but that might be up for a reversal.

Technicals or Fundamentals?

Last week, copper prices reached an all-time record high above $11,000 per tonne, not adjusted for inflation. This was mainly driven by a short squeeze led by supply disruptions in the market. Chile, host of the world's largest copper mine, experienced a major strike in the copper sector. Additionally, it was announced that the large Cobre copper mine in Panama would close. This happened against a backdrop of rising demand from China, where copper exports grew.

 Typically, copper prices correlate with US interest rates as do other commodities. However, this relationship has weakened the push for decarbonisation and the expected need for copper to support the energy transition. Copper demand now correlates more with demand for electric vehicles (EVs), solar power and wind turbines. While long-term demand trends remain solid, the slowdown in EV sales this year and higher borrowing costs to finance new energy investments could challenge copper prices in the short term. Therefore, although the recent peak was likely technical and probably transitory in nature, the overall upward trend for copper prices appears intact for the long run.

More Production, More Supply

Given the high copper prices, one way to potentially reverse this trend would be to increase supply levels. It is natural for large producers to want to expand production capacity when prices rise. However, copper producers have already pushed to add as much capacity as possible. For example, Antofagasta announced an expansion at their Centinela mine last year. However, due to persistently high interest rates, adding new capacity through capital expenditure on development has been slow recently. Major producers such as BHP have opted to buy up rivals, such as the successful acquisition of Oz Minerals and the unsuccessful bid for Anglo American, rather than take on the higher risk of exploring new discoveries. These discoveries could take many years to develop.

 For now, all eyes remain on demand from China as it attempts to revitalise its housing industry, which was previously a major source of copper demand, alongside the need for new energy infrastructure. While recent announcements have highlighted plans to boost production in Peru, overall copper production levels are expected to remain steady for at least the next few months. With both the Chinese and US economies anticipated to recover, demand could continue to grow and support further upside in copper futures prices.

Great Southern Ready to 'Deflag'

Great Southern Copper has soared threefold since its low of 0.93 GBX last June. Having appeared to find a floor after ending a flag pattern at 1.7 GBX, breaking past the upper channel could see the stocks rise to 3 GBX and eventually revisit the prior high of 3.75 GBX. Conversely, failing to hold firm by the recent swing low may lead to a decline to 1.30 GBX and potentially retest the June low once more.

Source: SpreadEx / Great Southern Copper

Key Takeaways

Copper hit a record high last week due to supply disruptions in Chile and Panama. While long-term demand trends from EV and renewable energy are positive, short-term challenges remain. High prices may also incentivise miners to increase production and weaken demand, potentially reversing recent gains. Increasing production capacity through mine expansions has been slow due to higher financing costs, with major producers acquiring rivals rather than developing new mines due to risks.