The Zhitong Finance App learned that CICC released a research report saying that it lowered the copper ore increase in 2024, indicating that the peak copper supply growth rate previously expected in 2024 may have occurred ahead of schedule, and the future copper concentrate production growth rate will decline. Combined with domestic and foreign plans for 2024-2025, the scale of crude refining capacity expansion is impressive. The bank believes this may accelerate the narrowing of copper concentrate surpluses until there is a shortage relative to the smelting side. This may also become the main driving force driving the upward shift in copper prices. The bank raised the 2024 LME copper price target to 9,200 US dollars/ton, and the average annual price was raised from 8,450 US dollars/ton to 8,700 US dollars/ton.
CICC's views are as follows:
Copper disruptions in the past two months changed the bank's expectations for the expansion of copper surpluses in 2024
The annual output of the Panamanian copper mine is about 350,000 tons, accounting for about 1.5% of the world's copper concentrate production capacity. The closure of the Panamanian copper mine exceeded market expectations, but looking back at the development of the incident, this is not the first time that the operation of this mine has been disrupted. The bank has compiled incidents of disruptions to mine operations and transportation since the end of 2022. In February 2023, the copper mine suspended ore processing for a month due to a lack of agreement with the government. On November 13, due to protesters blocking the port, First Quantum indicated that the amount of ore processed had decreased. Compared to previous disruptions, the bank believes that this shutdown due to the contract being found to be unconstitutional may last longer and have a greater impact. Under the benchmark situation, the bank expects the copper mine to be closed until after the Panamanian general election in May 2024, affecting production of about 170,000 tons in 2024. Following this, Anglo-American Resources, one of the world's major mining companies, drastically lowered production guidelines for 2024 and 2025 in December due to geological issues at Peru's Quellaveco mine and maintenance plans at its processing plant in Los Bronces, Chile. Anglo-American Resources lowered the 2024 copper production guidelines from 91 million tons to 730-790,000 tons, of which Chile and Peru's copper mine guidelines were lowered by about 130,000 tons and 65,000 tons, respectively, while the 2025 copper production guidelines were lowered to 69.750,000 tons, a drop of 180,000 tons.
The above two supply disruptions changed the bank's expectations for the extent of the copper surplus in 2024. The increase in global copper supply in 2024 is mainly due to the rise in copper production to be put into operation in 2023 and the release of a small amount of new production capacity, such as QB Phase II, TFM Copper, Udokan, and Oyu Tolgoi. In addition, the increase in production at the Mantoverde Copper Mine in Chile, the Congolese Gold Camoa Phase III, and the US Bingham Canyon is worth watching and tracking. However, the increase in global copper mining in 2025 is likely to be even more limited. Few large-scale mine projects can be predicted to be put into operation, and it may be more dependent on the increase brought about by climbing the slope of already invested projects to increase production.
According to the forecast released in November, the bank expects global copper concentrate production to rise by 876,000 tons in 2024, and the copper supply growth rate will reach its highest value in the second half of 2024. However, up to now, considering the impact of the Panamanian copper mine and Anglo-American resources production guidelines, the bank lowered the 2024 increase to 559,000 tons, an increase of 2.8% year-on-year, down from 3.8% in 2023. This means that the peak growth rate of global copper supply may have passed, which also enabled the bank's bullish copper price logic to be fulfilled ahead of schedule. Furthermore, as can be seen from the Panamanian copper mine incident and the UK and US resource production reduction guidelines, although the 2020-2022 epidemic, Russian-Ukrainian incident, and energy tension have all been mitigated, mining side supply disruptions cannot be ignored. Reduced grade quality, resource protectionism, and environmentalism in old mines will affect mining and effective supply in the medium to long term.
The expansion of global crude refining capacity in 2024-2025 may exacerbate the tense pattern on the mine side
Compared to copper concentrates with limited increments, the 2024-2025 global plan to expand crude refining capacity is impressive. According to SMM and WoodMac statistics, the planned domestic and foreign refining capacity increases in 2024-2025 may reach 80,000,000 tons and 2-2.5 million tons, respectively. The increase in production capacity in 2024 will mainly come from the Indonesian Free Port Project, India's Adani, Guangxi Nanguo, Baiyin Nonferrous, etc. The 2025 global planned crude refining capacity increase may mainly come from projects such as the Congolese Golden Camoa, Guangxi Jinchuan Phase II, Jinchuan Headquarters, Chifeng Jintong Phase II, and Yingkou Construction and Development. The bank anticipates that the impact of the rapid expansion of global crude refining capacity on the copper concentrate market may be clearly reflected in the second half of 2024 and 2025. Compared to the smelting end, copper ore may rapidly narrow or even become scarce, driving a further decline in processing costs until it drags down the release of smelting capacity, and tight supply and demand on the metal side will be realized.
Looking ahead, the demand side may face headwinds in 2024, but early fulfillment of supply constraints may boost copper prices
Overall, the pace of overseas economic growth and policy in 2024 is facing some uncertainty. The decline in the physical workload of completed domestic real estate may drag down demand for metal construction. The bank cannot rule out the possibility that potential “recession transactions” will drive copper prices down, but it is expected that there is limited room for a decline in copper prices and the duration may be relatively short. On the one hand, considering that global copper costs have risen compared to before the pandemic, the bank adheres to the forecast judgment that the low price of copper is about 7,750 US dollars/ton. On the other hand, the new energy properties of copper are increasing year by year, and the fundamental impact of traditional demand headwinds on copper can be offset by demand for new energy sources. According to the bank's demand model, the share of new energy demand in China's copper demand in 2023 has risen from 4% in 2018 to 14%, while the total share of construction and traditional infrastructure demand has dropped from 53% to 47%. The bank expects China's construction demand to drop by 45,000 tons in 2024, but even considering the possible sharp decline in PV installed growth, China's new energy demand will still contribute nearly 400,000 tons in 2024, and global new energy consumption may increase by 570,000 tons to 3.53 million tons. Considering that the increase in demand for new energy sources has offset the weakness in traditional demand, the bank believes that the early fulfillment of supply-side copper supply constraints and the expectation of limited future growth may be the focus of copper price trading in 2024, and is expected to drive the copper price center upward. Based on the above analysis, the bank raised the 2024 LME copper price target to 9,200 US dollars/ton, and the average annual price increased from 8,450 US dollars/ton to 8,700 US dollars/ton.
Risk warning: Panamanian copper production resumed early, and the process of “replacing copper with aluminum” in photovoltaic cables accelerated.