Copper prices are continuing to correct after hitting a record high last week but there are bullish signs on the horizon.
The world's largest copper producer is Chile's Codelco reported earnings today of $607 million through the first nine months of the year and the CEO said he's optimistic about prices. One of the big reasons is that major mines keep underproducing. A devastating accident at Freeport's Grasberg mine (the largest in the world) will keep much of its production offline next year and at Codelco's El Teniente mine an accident on July 31 caused a halt that the company said will take three years to normalize. In Africa, Ivanoe's flagship mine had seismic problems and the massive Cobre Panama mine remains shuttered after protests.
The even bigger problem might be the lack of quality grades and discoveries. Codelco is struggling to keep production high and now sees this year's production at 1.31-1.34m metric tons from 1.34-1.37m metric tons previously. At Teck's nearby QB2 mine, it's turning into something of a disaster as grades and production disappoint after a 10-year investment cycle to build it.
Now zoom out and let's look at Codelco as a symptom of a bigger problem. It's the world's largest copper producer and copper prices are at record highs. Its earnings are $607 million over nine months! That's nothing compared to the money that's being thrown around and earned in tech and AI. Why would you spend a decade building a copper mine to earn these kinds of profits when you can spin up and pump a tech company?
So what happens? Underinvestment and that's already been happening for a decade.
The irony is that copper is the critical underpinning of everything that's needed for AI, electricity growth and robotics. For next year, Goldman Sachs thinks the balances are slightly oversupplied but this will eventually come to a head.
