Copper supplies are expected to tighten further in 2023 and beyond. Yesterday, the world's largest copper miner, Chile's Codelco, told the local newspaper, El Mercurio, that they have set their 2023 production estimate at 1.45 million mt. For the five years between 2023 and 2027, the company expects to average 1.5 million mt.
Market Insights
Will Chilean Production Issues Drive Copper Prices Higher?
Production issues from the world's largest copper miner, Codelco, could lead to a copper price rally. Codelco cited declining ore grades, lower recovery levels and halted projects due to worker fatalities; for the decline in production and delaying of future endeavors.
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. In addition, 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. |
|---|
Since 2016, Chile's copper production has largely trended sideways. On an annual basis, production has ranged from 5.570 to 5.896 million mt. |
Due to the recent selloff, LME Copper's forward curve has shifted lower by nearly $1,300/mt since June 1. Also, the forward curve is now in backwardation, meaning that futures prices are lower than spot. Therefore, this could be a good time for copper end-users such as home builders to hedge future needs. |
Are you a copper end-user looking to hedge your future needs? Consumers can hedge copper in various ways, as we detail below. Buying swaps or call options are viable strategies, as either 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. |
Questions or comments? Reach out to our Metals team here: metals@aegis-hedging.com
Important Disclosure: Indicative prices are provided for information purposes only and do not represent a commitment from AEGIS Hedging Solutions LLC ("Aegis") to assist any client to transact at those prices, or at any price, in the future. Aegis makes no guarantee to the accuracy or completeness of such information. Aegis and/or its trading principals do not offer a trading program to clients, nor do they propose guiding or directing a commodity interest account for any client based on any such trading program. Certain information in this presentation may constitute forward-looking statements, which can be identified by the use of forward-looking terminology such as "edge," "advantage," "opportunity," "believe," or other variations thereon or comparable terminology. Such statements are not guarantees of future performance or activities.
Want this in your inbox?
AEGIS market analysts publish research across crude, natural gas, NGLs, refined products, metals, and rates.
Subscribe to research
