Copper prices have surged this month and are on the verge of reaching $10,000 per ton. The increase in copper prices seems to stem from robust US macroeconomic data and the improving prospects of the Chinese manufacturing industry. Additionally, it is widely regarded that copper is a crucial cornerstone for energy transition, making it an attractive prospect for demand.
Olivia Markham, co-manager of the BlackRock World Mining Fund, has stated that copper prices need to reach $12,000 per ton, a 20% increase from this week’s peak, in order to incentivize significant investments in new mines. While the current price has reached a two-year high at around $10,000, Markham suggests that further increases are needed to encourage miners to sign on projects and avoid significant deficits during the energy transition. She believes that the current price is far below what is needed to incentivize new production. Structurally, there is a requirement for more copper units, and she has not yet observed a significant amount of new supply.
BlackRock has been one of the most bullish voices in the copper market for years, and as buyers face unprecedented shortages of mined ore, this sentiment is gradually being echoed throughout the industry. While concerns about softening demand in China have persisted this year, it is widely agreed that exacerbated ore shortages could stimulate copper prices.
Markham’s predictions are based on the analysis of the recent surge in construction costs for copper mining projects, with an average cost of around $30,000 per ton of production capacity. For a mine with an annual output of 300,000 tons, this translates to a cost of approximately $9 billion. Incentive pricing analysis indicates that miners need copper prices to reach $12,000 in order to achieve a 15% after-tax return on future investments. Below this price, they may be less willing to continue investing.
With signs of improvement in the manufacturing industry and copper ore shortages this year, some are beginning to question whether this is the start of a bull market for copper and whether prices will break historical records.
As of 3:48 PM local time on Wednesday, copper prices on the London Metal Exchange rose by 1.2% to $9,818.50 per ton, marking a nearly 15% increase since the beginning of the year.
