Copper Price Update: Q2 2023 in Review

The highest point of the quarter came on April 13, when copper was changing hands for U$9,058.50. Since then, prices have been unable to go back to the US$9,000 level, plummeting all the way down to US$7,901.50 — the lowest point of the quarter.

Speaking with INN about copper’s performance in the second quarter, Federico Gay, senior analyst at Refinitiv and LSEG, said the initial impulse the Chinese economy had during the first quarter started to show weakening signals.

“(The) copper price, as a barometer for global markets, usually increases during economic expansion times and decreases with lower industrial activity,” he said. “After the zero-COVID policies finished in China, optimism reigned, but the Chinese Purchasing Managers Index contracted in April … while in other parts of the world inflation proved to be a bigger challenge than originally imagined, and a general stagnation of the economy was becoming clearer.”

All in all, copper prices ended the three month period at US$8,315.50, down by more than US$600. That left the red metal almost flat since the start of the year.

Copper supply and demand dynamics in 2023

Copper is widely used in building construction, electrical grids, electronic products, transportation equipment and home appliances. But demand from top consumer China has been weaker than expected, and the global macroeconomic outlook has also put the red metal under pressure.

“While China macro has been weak, actual copper demand has held up relatively well, helped by green energy applications, such as electric vehicles (EVs) and renewables, especially solar, domestically — and in the case of EVs, in export markets as well,” Robert Edwards of CRU Group told INN.

EVs use about four times more copper than internal combustion engine cars, according to the International Copper Study Group. Copper is needed for the batteries, windings and rotors used in electric motors, wiring, busbars and charging infrastructure.

Additionally, air conditioner production, which accounts for about 10 percent of Chinese copper demand, is up 10 percent year-on-year. Domestic sales have been very strong even with the apparent weakness in the property sector, according to CRU data.

“Regarding China, there’s a growing voice of a broader stimulus package, which is expected to support currently troubled sectors, such as real estate and small- to medium-scale industries, that might help boost domestic demand,” Refinitiv’s Gay said.

In the rest of the world demand is slowing as expected.

“Especially in Europe — I would say there’s limited recovery expected for the second half, if at all,” Edwards said. “There are some pockets of demand strength, such as India, but it is still a small market.”

For Gay, the US and the Eurozone’s ongoing battles against inflation are weighing on demand.

“Although some promising results are starting to be seen in some countries, it seems unlikely that industrial activity will pick up shortly,” he said. “The war in Ukraine is also factoring down, as it brings a certain uncertainty level to the market.”

Supply on the other hand was hit during the first few months of the year.

“The first two months of the year, production was quite heavily disrupted, especially with protests at mines in Peru, but subsequently many of the issues have been resolved and mine side is performing reasonably well in aggregate,” Edwards said.

Chile is the world’s largest copper producer, putting out 5.2 million MT of copper in 2022, while Peru comes in second at 2.2 million MT, together with the Democratic Republic of Congo. “We were looking at a deficit (for 2023), but the market is probably now much closer to balanced, if not edging into surplus,” Edwards said.

Refinitiv data shows that during the first months of the year the refined copper balance was at a deficit of around 77,000 MT. “Considering current variables and an improving economic sentiment for the second half of the year, we estimate a surplus circa 80,000 tonnes at the end of 2023,” Gay said.

Looking at the long term, copper is facing a potential supply shortage before the end of the decade, with juniors and producers facing hurdles to bring new supply online.

For Edwards, some of the challenges for miners today include shareholder willingness to support the approval of major capital expenditures. “(There’s also) rising capital costs with increased uncertainty, and (there are) still challenging operating conditions in some countries,” he added.

Gay agreed, saying the most complex factor for the mining industry at the moment is the high level of uncertainty and lack of long-term policies regarding the mining industry in top-producing countries, mainly Chile and Peru.

“This has eroded the investor’s trust and possibly slowed down some necessary investments in the region,” he said. “Aging mines and depleting resources might act as a ticking bomb that will be harder to disarm as time passes by.”

The analyst also pointed to the need for miners to do extra work on engagement with communities to secure long-term relationships and minimize disruption risks.

“The mining industry needs to continue changing its image from an extractive-only industry to a value-creating industry,” he said. “It is my belief that social license is one of the top challenges copper mining is facing, and will remain facing in the near future.”