Richard Mills, a precious metals expert and author of Ahead of the Herd, has said that the market is about to enter the next copper super cycle. Despite the fact that prices have reached the highest level in the past five years, some believe that copper and other commodities have never been so undervalued. Once the Fed begins to lower interest rates, the US dollar will weaken and the entire commodities market will strengthen.
New research from the University of Michigan and Cornell University shows just how much the industry has fallen behind in opening up new mines. Researchers found that the rate at which copper mines are being opened cannot keep up with current US policy guidance, which is shifting away from fossil-fuel power generation and transportation towards electric vehicles and renewable energy.
(Source: GoldSeek)
For example, the 'Inflation Reduction Act' requires that by 2035, 100% of new cars must be electric.
"An ordinary Honda Accord needs about 40 pounds of copper, while the same battery-powered Honda Accord needs nearly 200 pounds of copper. A land-based wind turbine requires around 10 tons of copper, while in offshore wind turbines this amount may increase by more than twice," said co-author Adam Simon, who published the paper at the International Energy Forum (IEF).
"Our paper shows that the required amount of copper is basically impossible for mining companies to produce."
Just how impossible? Researchers found that between 2018 and 2050, the world will need to mine 115% more copper than in the entire human history up to 2018. This will meet the current copper demand in the market and support developing countries without considering the green energy transition.
To electrify the world's cars globally, it would take more than 55% of new mines. Within the next 32 years, 35 to 195 large copper mines must be built, with up to a maximum of six per year. In other words, this is impossible. In strictly regulated environments such as the US and Canada, building a mine from scratch can take up to 20 years.
(Source: International Energy Forum)
(Source: International Energy Forum)
Simon suggests not fully electrifying American cars, but focusing on making hybrid cars because they require much less copper than electric cars, at 29kg and 60kg respectively.
The research found that this does not require major improvements to the power grid and has almost the same impact on reducing carbon dioxide emissions. In addition, it is much more likely to find the copper needed for making hybrid cars than for electric cars.
Due to the Panamanian government's closure of the Panama copper mine and strikes at the Las Bambas copper mine in Peru, nearly 600,000 tonnes of copper supply were unable to flow into the market last year.
Anglo American said its Chilean production would be disappointing in 2024 due to declining ores at the Los Bronces mine and logistical problems, with expected production of between 210,000 and 270,000 tonnes. Chile's copper production has been hit by a long-term drought in the north of the country, with Codelco's production in 2023 the lowest in 25 years. Copper production in Chile fell to its lowest level in over a year in April, worrying the world's largest copper-producing country. Mine production fell 6.7% from March and 1.5% from April 2023.
The goal of transforming to clean energy is to eliminate air pollution and copper is one of the most important metals needed to drive this transformation, but environmental issues often hinder the opening of new mines.
Sprott's report pointed out that copper miners face strict environmental regulations related to land use, pollution control and protection, which may delay new projects.
Barron's highlighted in a recent article that the US National Environmental Policy Act has made it difficult to manage the licensing process for large mining and energy infrastructure projects. Although the Biden administration and congressional leaders are trying to reform the licensing process, US media outlets have pointed out that this does not help mining projects that enter the licensing process in the next one to two years. This includes the Resolution copper mine in Arizona, the Rhyolite Ridge lithium boron project and the Stibnite gold mine project.
The copper price rose to a record high of $5.20 per pound in May, and although it has fallen recently, speculation that a shortage is about to occur has pushed up copper prices by 13% this year so far.
The Fed froze interest rates last week at levels of 5.25-5.5%, and said it may only cut rates once by the end of the year, rather than twice.
In May, the inflation rate fell 0.2% from 3.4% in April to 3.6%, but still well below the Fed's target of 2%.
According to gold and copper bull Peter Schiff, even without a large influx of speculative funds, high inflation and supply shortages, coupled with increased demand for electric cars, the vigorous development of renewable energy technology and the AI bubble, prices will continue to rise.
Schiff believes that even if the unrealistic "net-zero" target is lowered to a more realistic number, demand will still exist, and the current supply tightness and inflationary pressures will continue to exist.
In order to avoid a banking and commercial real estate crisis, the Federal Reserve will have to cut interest rates at some point. This will trigger a new round of inflationary expansion, as the Fed ignores the pressure its policies are causing.
Richard summarized that for copper, all of the above factors mean one thing, which is rising prices.
"We have mentioned before that the closure of the Cobre Panama copper mine, large-scale strikes in Peru, and Chile's failure to meet production expectations have all caused concerns about supply," he pointed out. "As we reported in April, according to the company's own forecast, all four of Codelco's large projects have been delayed for several years, facing cost overruns totaling billions of dollars, and have encountered accidents and operational problems while failing to achieve promised production increases."
People are also concerned about Zambia, the second largest copper producer in Africa, where drought conditions have lowered dam water levels, causing a power crisis and threatening the country's planned copper mine expansion.
According to Ivanhoe Mines, the latest large copper mine in the world, Kamoa-Kakula in the Democratic Republic of the Congo, experienced a 6.5% decline in quarterly production.
The tight situation in the copper concentrate market is reflected in the processing and refining costs, which have plummeted from over $90 per ton to below $10 per ton. This sharp price drop has forced Chinese smelters to consider a 10% production cut, and Chinese smelters account for about 50% of the world's refined copper production. At the same time, copper demand continues to rise.
Although prices have reached the highest level in the past five years, some people believe that the prices of copper and other commodities have never been so undervalued.
"What we can be sure of is that the prospects for all commodities depend on the US dollar. Once the Federal Reserve starts cutting interest rates, the US dollar will weaken and the entire commodity market will strengthen," said Richard when looking ahead.
Historically, investing in junior companies has been a good way to take advantage of rising metal prices.
Small copper mines have the mines of the future, and they help large copper mining companies supplement the constantly depleting ores in their operating mines, thereby helping to overcome the soon-to-arrive copper supply shortage known to the market.