How did copper prices perform in Q1?
At the start of 2024, analysts expected copper prices to be rangebound. A surplus was anticipated, even with lowered supply due to the shuttering of a major mine and guidance cuts elsewhere. Deficits weren't expected to start forming until 2025 as supply came under more pressure due to increasing demand from the energy transition.
At the time, independent metals and mining consultant Karen Norton told the Investing News Network (INN), "With the market now looking more finely balanced, prices are likely to prove more susceptible to broader swings in either direction in the advent of significant news that affects the market."
Copper price, Q1 2024.
Chart via the London Metal Exchange.
Copper's price uptick in March came as the market felt the loss of First Quantum Minerals' (TSX:FM,OTC Pink:FQVLF) Cobre Panama mine, as well as guidance cuts from Anglo American (LSE:AAL,OTCQX:AAUKF) and steady declines at Chile's Chuquicamata mine. Together they caused concentrate supply to become increasingly tight.
In mid-March, top Chinese smelters announced plans to work together to cut production. Limited supply had forced them to lower their treatment and refining charges (TC/RCs), but this stressed their profitability.
In an email to INN at the beginning of April, Exploration Insights Editor Joe Mazumdar said, "The concentrate market balance is accurately reflected in the fall of TC/RCs. To ensure the profitability of the domestic smelters, the Chinese manufacturers have decided to cut production, bring maintenance work forward and/or delay further expansions."
According to Mazumdar, the cuts to smelter capacity will begin to put pressure on the availability of refined stockpiles and push copper closer to a deficit position sooner than expected.
This supply bottleneck caused significant gains for the metal's price through the last half of March and into April.
While this is largely good news for copper producers as high prices and low TC/RCs improve margins, Mazumdar thinks the price will need to stay elevated to have any real impact on investment into the industry.
"Companies may need a longer period of higher prices to incentivize them to build projects given the capital expenditure blowouts witnessed by the construction of projects such as Quebrada Blanca 2 by Teck Resources (TSX:TECK.A,TECK.B,NYSE:TECK) in Chile," he said.
