The Looming Copper Supply Crunch

POSTED ON June 24, 2015 BY Visual Capitalist
CATEGORY Western Copper and Gold,

This infographic is presented by Western Copper & Gold

Copper is among the three most used metals in the world, and high quantities of the red metal must be mined every year to meet global demand.

The market for copper is equal to approximately $120 billion each year, which rivals that of even iron ore, the most widely traded metal. This is because infrastructure, technology, and automobiles consume massive amounts of copper.

Behind silver, copper is the second best metal for conducting electricity. That’s why 75% of copper is used in electrical wires or for wiring in machinery. From power grids to motherboards, copper wire is indispensable to modern society.

Copper is also essential for green energy and a sustainable future. For example, each generation of car needs more copper wiring: a gasoline-powered car needs 55 lbs, while hybrids and electric vehicles need 110 lbs and 165 lbs respectively. Further, it is estimated that an average of 3.6 tonnes of copper is used for each MW of wind power.

THE COPPER SUPPLY PROBLEM

The problem is: copper is not being discovered fast enough to meet upcoming demand. A study by Wood Mackenzie found that there will be a 10 million tonne supply deficit by 2028. That’s equal to the annual production of the world’s biggest copper mine (Escondida) multiplied by a factor of ten.

There are several reasons for this.

First, it now takes longer to go from discovery to production than ever before in the mining industry. Geological, environmental, and political challenges have brought the average lead time to around 20 years for new mines.

Beyond all of the challenges above, the economics also have to line up. Thomson Reuters GFMS estimates that for new copper supply to be incentivized to come online, the copper price must be $3.50 per pound.

Copper mining is all about grade or scale. The majority of global output comes from mega mines that have massive economies of scale to reduce costs. However, it has been a long-running trend that the grades for these established mines are dropping.

A good example of this is Escondida, the world’s largest copper mine which is located in Chile. It produced 6% of global copper output in 2014, but the mine is facing a similar problem to that of other large copper projects: grades are dropping. In 2007, the copper grade was 1.72%, but it is predicted to drop to half of that in upcoming years. In fact, BHP Billiton is expecting a year-over-year decline of 24% between 2015 and 2016.

Codelco is the world’s largest copper miner overall, and has recently announced a $25 billion investment plan to expand aging mines. It will spend $5 billion each year, but it expects no significant gain in production for its efforts.

THE COMING SUPPLY GAP

Add these factors together, and stocks of copper are at their lowest levels since 2008. Further, 4% of the world’s copper mining capacity falls off the table each year, which means that this must be replaced somehow.

With 10 Escondidas needed to fill a 10 million tonne supply deficit by 2028, metals investors need to stay vigilant as changes in the market will be coming.

Visual Capitalist

jeff@visualcapitalist.com

Visual Capitalist

jeff@visualcapitalist.com

Disclaimer:

Readers are advised that the material contained herein is solely for information purposes. Readers are encouraged to conduct their own research and due diligence, and/or obtain professional advice. Nothing contained herein constitutes a representation by the publisher, nor a solicitation for the purchase or sale of securities. The information contained herein is based on sources which the publisher believes to be reliable, but is not guaranteed to be accurate, and does not purport to be a complete statement or summary of the available data. Any opinions expressed are subject to change without notice. The owner, editor, writer and publisher and their associates are not responsible for errors or omissions. They may from time to time have a position in the securities of the companies mentioned herein, and may change their positions without notice. (Any significant positions will be disclosed explicitly. This article is not intended to meet your specific individual investment needs and it is not tailored to your personal financial situation. Nothing contained herein constitutes, is intended, or deemed to be — either implied or otherwise — investment advice. Thomas Humphreys, Pacific Website Company Inc., and other entities in which he has an interest, employees, officers, family, and associates may from time to time have positions in the securities or commodities covered in these publications or web site. We reserve the right to buy and sell such securities or commodities without notice to readers. While the information herein is believed to be accurate and reliable it is not guaranteed or implied to be so. The information herein may not be complete or correct; it is provided in good faith but without any legal responsibility or obligation to provide future updates. Neither Thomas Humphreys, nor anyone else, accepts any responsibility, or assumes any liability, whatsoever, for any direct, indirect or consequential loss arising from the use of the information in these publications or web site.

Forward-Looking Statements: This article may include certain "forward-looking information" within the meaning of Canadian securities legislation. Forward-looking statements include predictions, projections and forecasts and are often, but not always, identified by the use of words such as "seek", "anticipate", "believe", "plan", "estimate", "forecast", "expect", "potential", "project", "target", "schedule", budget" and "intend" and statements that an event or result "may", "will", "should", "could" or "might" occur or be achieved and other similar expressions and includes the negatives thereof. All statements other than statements of historical fact included in this release, including, without limitation, statements regarding the potential of the Company's properties are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. Forward-looking statements are based on a number of material factors and assumptions. Important factors that could cause actual results to differ materially from Company's expectations include actual exploration results, changes in project parameters as plans continue to be refined, future metal prices, availability of capital and financing on acceptable terms, general economic, market or business conditions, uninsured risks, regulatory changes, delays or inability to receive required approvals, and other exploration or other risks detailed herein and from time to time in the filings made by the Company with securities regulators. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ from those described in forward-looking statements, there may be other factors that cause such actions, events or results to differ materially from those anticipated. There can be no assurance that forward-looking statements will prove to be accurate and accordingly readers are cautioned not to place undue reliance on forward-looking statements which speak only as of the date of this article. The Company disclaims any intention or obligation, except to the extent required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Always do your own due diligence. We seek safe harbor.