September 1, 2022

Copper supplies are expected to tighten further in 2023 and beyond. Yesterday, the world’s largest copper miner, Chile’s Codelco, told local newspaper El Mercurio that they have set their 2023 production estimate at 1.45 million mt. For the five-year period between 2023 and 2027, the company now expects to average 1.5 million mt. Just last week, Codelco lowered its 2022 production estimate range to between 1.49 million mt and 1.51 million mt, down from a prior estimate of 1.61 million mt. These production estimates are due in part to declining ore grades and lower recovery levels at several sites.  Several construction projects have been halted due to worker fatalities, thereby delaying future production endeavors.

At 5.6 million mt, Chile was the world’s largest copper producer in 2021, according to the USGS. Total world production was 21 million mt that year. Although Codelco’s predicted drop in production this year is only approximately 0.5% of global mine production, this could add to the supply deficit of refined copper. The same is true for the expected declines into 2023 and beyond. According to the International Copper Study Group’s most recent estimate, the world refined copper balance is currently in a deficit of 72,000 mt. 

LME Copper prices have dropped precipitously in recent months. Likewise, the forward curve has also plummeted. Compared to three months ago, LME Copper’s forward curve has shifted vertically lower by nearly $1,700/mt. This could provide a better opportunity for end-users to hedge future needs into 2023 and beyond by buying swaps, as this strategy would establish a maximum copper price. Such positions are standard for consumer hedging; however, they can result in opportunity costs or cash costs if metal prices decrease. Please contact AEGIS for specific strategies that fit your operations. (9/1/2022)

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