Copper Breaches $5-Per-Pound Mark Amid Supply Constraints And Speculative Demand

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Copper futures soared to a record high of $5.13 per pound before easing to $5.05 on Wednesday, driven by mounting concerns over insufficient supply and heightened speculative demand, further intensified by a short-squeeze in the US.

The metal’s pivotal role in electrification—from electric vehicle charging infrastructure to grid-scale energy storage and data-center development—continues to underpin optimistic forecasts for its utility.

China’s increasing copper ore imports, despite the sharp price rise, underscore robust demand from manufacturers. This trend fuels hopes for industrial growth in the country following Beijing’s plan to issue long-maturity bonds.

However, the scarcity of copper has adversely affected Chinese smelters, which account for over half of the global supply, squeezing their margins and reducing output.

The prospect of increased mine supply remains bleak. High costs associated with new projects have led major mining companies to pursue mergers and acquisitions rather than initiate new developments. This trend was highlighted by BHP’s renewed attempt to acquire Anglo American, signaling a shift in strategy among mining giants facing the financial and logistical challenges of expanding production.

Copping copper

The Biden administration has begun discussions with potential investors about acquiring a stake in one of the world’s top copper producers’ Zambian mines, valued at up to $3 billion. This initiative follows a financial crisis faced by the mines owner, First Quantum Metals, and aims to prevent Chinese control over these crucial resources.

The effort to secure the Zambian mines is part of a global rush to acquire more copper. The bidding process, expected to conclude later this year, highlights the intense demand for copper.

The U.S. has long focused on building up supplies of critical metals and minerals essential for the green-energy transition. Copper futures have risen 20% this year, reflecting the urgent need for new sources as existing mines close or reduce output.

However, the U.S. lacks a domestic mining industry and a sovereign wealth fund, unlike China, which can direct its state-owned enterprises to invest heavily regardless of commodity prices.

Given these limitations, the U.S. government collaborates with private companies and friendly nations to secure investments in strategic assets. For instance, the U.S. and Saudi Arabia have discussed agreements in the Democratic Republic of Congo, ensuring American companies have rights to production from Saudi-invested mines.

Amos Hochstein, a senior adviser to U.S. President Joe Biden, has been instrumental in these efforts. Hochstein and his team have been traveling globally to promote an investment model that avoids debt and corruption. The U.S. has committed over $1 billion to the Lobito Corridor project, enhancing infrastructure to export critical minerals from Angola, Congo, and Zambia. Additionally, the U.S. successfully urged the UAE to invest in Zambia’s Mopani Copper Mines.

Last year, the International Development Finance Corp invested $740 million in the mining sector, significantly up from previous years. The agency is currently negotiating to finance a major copper mine in Pakistan, which is expected to become one of the world’s largest by 2028. TechMet, an Irish company, is one of the agency’s key investments, having received $105 million in funding.

Meanwhile, Chinese miners, with government backing, continue to acquire global mining assets aggressively. Last year, China spent over $19 billion on metals and mining investments in Belt and Road countries, the highest level since 2013. A Chinese firm is also in advanced talks to buy Chemaf, a metals producer developing a cobalt and copper mine in Congo, competing with Western companies for control of these resources.

Exploiting the price gap

Copper producers and traders are increasingly shipping more metal to the U.S. to capitalize on higher prices for CME futures compared to the London Metal Exchange, according to four sources involved in these trades.

This practice, known as arbitrage, involves selling commodities in different locations to benefit from price discrepancies. The current trend is driven by surging U.S. copper prices, as hedge funds have increased their positions in the futures market amid relatively strong demand.

On Tuesday, CME copper futures for July climbed above $10,800 per metric ton, more than $600 per metric ton above the LME price, compared to a difference of about $50 at the end of February. This significant price gap between the CME and LME has been a “big time positive” for the past two weeks, according to a source working with a South American producer.

Bids for copper to the US for June have risen to a premium of $300 per ton over the LME price, almost double what shipments were selling for a week ago. The shorter transit time from South America to the US has also halved financing costs compared to shipping to China.

“You can see the (copper) demand in the draw on CME stocks,” said a copper trader based in London. Copper stocks in CME warehouses in the U.S. have dropped 30% to 21,310 tons in the past month, indicating strong end-user demand for the industrial metal. In comparison, stocks of copper in LME-approved warehouses have fallen over 15% since early April, now standing at 103,100 tons.

Traders have cited low water levels in the Panama Canal as a factor contributing to tight supplies, along with disruptions at First Quantum’s Cobre operation in Panama.

Copper boom

Several mining companies meanwhile are advancing their projects, aiming to capitalize on the soaring demand for the industrial metal.

Giant Mining Corp. (CSE: BFG) has taken significant steps towards expanding its presence in the market. The company, which recently underwent a rebranding from Augusta Gold, is in the process of raising funds to conduct copper exploration in Nevada.

Giant Mining’s flagship project, the Majuba Hill Porphyry Copper Project situated in Nevada, USA, is targeting a resource between 50 and 100 million tonnes. Past drilling saw intersections such as 7.6 meters at 1.55% copper, 44.5 meters at 1.41% copper, 47.4 meters at 1.06% copper, and 113 meters at 0.45% copper.

Small scale historic mining has occurred at Majuba Hill, which was primarily concentrated on the Majuba fault zone and veins in subordinate structures. Drilling to date meanwhile has outlined a body of oxide copper-silver-gold mineralization, which is in the process of being defined and modeled to produce a mineral resource estimate. An imminent drilling initiative aims to provide the data required for that estimate.

Element 29 Resources (TSXV: ECU) is another player in the sector, focusing on copper exploration and development in Peru. With projects like the Elida Porphyry copper deposit and the Flor de Cobre Porphyry copper project, Element 29 aims to tap into the vast potential of Peruvian mining resources.

The pit-constrained, inferred mineral resource estimate for Elida encompasses 321.7 million tonnes, grading at 0.32% copper, equivalent to 2.24 billion pounds of contained copper. Additionally, it includes 0.029% molybdenum and 2.6 g/t silver.

Within this resource, there exists a near-surface, higher-grade subset comprising 34.1 million inferred tonnes, with copper grading at 0.55%, alongside 0.037% molybdenum, and 4.4 g/t silver. This subset, delineated by a cut-off grade of 0.45% copper, holds significant potential for extraction with minimal stripping during the initial years of mining.

Sterling Metals Corp. (TSXV: SAG) meanwhile is making waves in the Canadian mining landscape with a recent acquisition. The completion of the acquisition of the Copper Road project in Ontario marks a milestone for Sterling Metals, positioning the company to explore new copper-moly-silver-gold prospects in the region. The Copper Road project spans 24,000 hectares and represents a promising brownfield copper-moly-silver-gold venture linked to the Midcontinent Rift. Remarkably, until 2021, this project had never been fully consolidated.

Historical production data from the Coppercorp and Tribag Mines further underscores its potential. Between 1965 and 1973, Coppercorp extracted 1.02 million tonnes at 1.16% copper, while Tribag Mines reported extracting 16,000 tonnes from over 1 million tonnes of ore. Tribag Mines also reported reserves of 600,000 tons at 2.2% copper during the same period.

Recent drilling activities in 2023 have validated and expanded upon historical porphyry and breccia results at the heart of the project. Notable highlights from drilling in the breccia zone include intersections such as 38.63 meters of 1.06% copper and 50.17 meters of 0.88% copper, from depths of 76 meters and 79 meters downhole, respectively.


Information for this story was found via The Wall Street Journal, Mining.com, and the sources and companies mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

FULL DISCLOSURE: Sterling Metals is a client of Canacom Group, the parent company of The Deep Dive. Canacom Group is currently long the equity of Sterling Metals. The author has been compensated to cover Sterling Metals on The Deep Dive, with The Deep Dive having full editorial control. Not a recommendation to buy or sell. We may buy or sell securities in the company at any time. Always do additional research and consult a professional before purchasing a security.

FULL DISCLOSURE: Element 29 Resources is a client of Canacom Group, the parent company of The Deep Dive. Canacom Group is currently long the equity of Element 29 Resources. The author has been compensated to cover Element 29 Resources on The Deep Dive, with The Deep Dive having full editorial control. Not a recommendation to buy or sell. We may buy or sell securities in the company at any time. Always do additional research and consult a professional before purchasing a security.

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