The beginning of 2023 has already seen copper jump above $9000/t since June 2022, due to renewed optimism about China’s economy after the government abandoned the zero-Covid policy. As the world’s largest consumer of copper, China’s reopening is set to have a significant impact on copper demand and prices. While this is a major driving force, there are several factors driving this surge and the outlook for copper prices in the near future, most of them coming from this change.
The announcement of the reopening was a boost to prices and sentiment in commodity markets, but copper itself has been rallying since late November 2022. China put several supportive policies in place and sent clear signals to the market that it would be supportive of key industries to its economy.
The news sent stocks higher from lows that were exaggerated in late 2021 and most of 2022 because of changes in investor sentiment. These policies, including an increase in infrastructure spending, helped support copper prices. Names like Ivanhoe Mines (TSX:IVN) are up over 44% over the last six months alone beginning in August 2022. Amarc Resources (CSE:AHR) is up over 45% during that same period, and junior copper exploration company Solaris Resources (TSX:SLS) (OTCQB:SLSSF) has gone from $4.82 on November 3, 2022 to touch a high of $7.55 on December 2, 2022, just one month later.
Property stimulus helped improve overall investor sentiment, improving the outlook for industrial metals. The country’s property sector and rapid urbanization were drivers of copper demand growth, and as China is increasing its support for businesses and households, the world’s biggest consumer of copper is likely to rebound faster.
The effects of these changes will be felt at different times, with major mining companies seeing the effects earlier than developers and explorers. China is expected to import more copper in the coming months and years, leading to higher prices. With demand increasing and supplies going up, the outlook for copper is set to be bullish in the near term.
In the Western Hemisphere, the Inflation Reduction Act and the infrastructure stimulus package proposed by the Biden administration are set to provide an additional boost to copper prices, as they both target the construction and infrastructure sectors.
Electrical vehicle charging stations and infrastructure for electric generation technologies are two of the main areas where copper stands to benefit. Copper is used in wiring, transformers, and other electrical components in electric vehicle charging stations and for the electrical grid. With the Biden administration’s $2 trillion dollar infrastructure plan and electric vehicle subsidies, the demand for copper could surge in the coming years.
Copper companies are not slowing down either, as supply was already far behind demand without further growth. Producers such as Ivanhoe Mines are looking for new strategic partners to mine more copper in the Congo. The company’s Kamoa-Kakula mine is one of four major mines coming on stream or ramping up including Quellaveco in Peru, Spence-SGO in Chile, and Quebrada Blanca II in Peru.
On the exploration front, juniors have continued to make new discoveries at projects that could be the future producing mega-mines of the industry. Solaris Resources (TSX:SLS) (OTCQB:SLSSF) issued a large 1.5 Bt copper resource last year at its Warintza Project in southeastern Ecuador – this is the size that any of the largest mining companies in the industry would be interested in. For reference, the largest greenfield copper mines to have gone into production this cycle including Quebrada Blanca II and Quellaveco are 1.4 Bt and 1.7 Bt, respectively. The resource is a standout on its own, but the really special part about Warintza is the economics and there are two components that play into this: low-cost intensity in Ecuador and the high grade starter pit of 0.3 Bt @ 0.8% CuEq. This would imply a payback period of less than two years for this asset – which is unheard of. The best mines that have gone into production this cycle have four to six year capital payback periods. This gives Warintza uniquely robust economics for an asset of this scale, making it one of the top copper M&A targets.
The coming year looks to be a decisive one, with decisions at the national policy level in China and the US likely to set the tone for the global copper market. With prices already rising, the outlook seems to point to further gains in the near term and beyond.
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