Copper Price Update: Q3 2023 in Review

Chinese copper demand takes a hit

The worsening crisis in China's real estate has been a key contributor to copper's price decline. Country Garden (OTC Pink: CTRYF ,HKEX:2007), the country’s largest real estate company, warned in August that it was nearing default on its debt, while Evergrande’s (OTC: EVGPF ,HKEX:3333) American arm filed for Chapter 15 bankruptcy protection in August.

The real estate sector represents 30 percent of China’s GDP and is a primary consumer of the red metal. While the government has tried to stimulate home buying in the country, its efforts haven’t achieved positive results. The precarious state of the industry in China has heavily impacted the outlook for copper demand.

Protests in Peru disrupt copper supply

The year started with a series of deadly mining protests in Peru — they began in late 2022 and continued through March, leading to a 25 percent year-on-year drop in mining exports from the country in January.

While the protests slowed in the second quarter, they once again flared up in mid-July and into August, this time coordinated by mining workers and unions who demanded the resignation of President Dina Boluarte. However, the latest round of protests were largely confined to the nation’s capital of Lima, limiting their effects on the mining sector.

After months of unrest, Peruvian Prime Minister Alberto Otarola pledged at the end of September to crack down on the chaos and instability . Industry insiders have noted that the country remains weak in its effectiveness in curbing the protests, and there is uncertainty around government stability as well as industry regulations and red tape .

Despite these issues, copper production in Peru increased by around 19 percent during the first three quarters of the year compared to the same period in 2022. In an email to the Investing News Network, Federico Gay, senior mining analyst at Refinitiv, noted that these production increases were largely due to new mining operations coming online or reaching capacity in Peru in 2023, including Anglo American’s Quellaveco.

This increased production will help Peru retain its position as a top copper producer for the time being. “We estimate Peru will remain the second largest producer for the next couple of years,” Gay explained, “but the DRC, currently the third largest producer, is threatening to take Peru’s place in the future.”

What's ahead for the copper market in 2023?

While protests in Peru may have cooled, the political situation remains delicate in South America as countries throughout the region shift from right to left-leaning policies. “The consensus seems to be lacking consistency regarding foreign policies and investment protection,” Gay noted. This could mean further future instability for supply.

Looking further into the future, with more countries enacting policies for the green energy transition, demand for copper is expected to soar over the next decade. In fact, it has already been labeled a critical mineral by the US Department of Energy for its use in electric motors and renewable power generation.

Additional demand is likely to come from the real estate market as countries work to solve the global housing crisis. The market is already the largest consumer of copper, and pressure is mounting to build more affordable homes, as it’s predicted that 1.6 billion people could be impacted by the crisis by 2025. The World Economic Forum estimates 3 billion people will need access to affordable housing by 2030, requiring the construction of 96,000 homes per day.

Adding to the supply and demand problem is a lack of new mines being built. “The main problem is that the industry is not communicating the urgency to bring new mines online,” Gay said.

The new copper mine starts and expansions beginning operation in 2023 and 2024 are the last planned for the foreseeable future, and new mines can take decades to complete . This might be good news for those chasing the price of copper, but it’s likely to have a domino effect on other industries that rely on the red metal.

“We are reaching a point of no return for developing the long list of mining projects needed for the energy transition plans,” Gay said. “But it is my opinion that regulations are not expected to ease in the near future.”

Gay suggested that prices for copper are set to remain stable for the next few quarters, hovering around $8,500 through the end of 2023, before rebounding slightly to around $8,800 in 2024.