The Zhitong Finance App learned that CITIC Securities released a research report saying that as multiple disturbances gradually become normal, the trend of global copper supply falling short of expectations is expected to continue. It is expected that the global copper supply will increase by 80/62/55/ 500,000 tons in 2024-2027. As mining side growth continues to decline, the refined copper supply pattern is expected to shift from tight balance to shortage. The global refined copper supply and demand balance is expected to be +17/-2/-38/ -750,000 tons in 2024-2027, corresponding to the 2024-2025 copper price center forecast of 9,000/10,000 US dollars/ton. Maintain the sector's “better than the market” rating.

▍ The main views of CITIC Securities are as follows:

Global copper supply has continued to fall short of expectations since 2019.

According to the annual reports of various companies, in 2019-2022, the actual output of the world's major copper companies was 19/21/32/410,000 tons lower than the guidance values of each company at the beginning of the year, and the degree of completion of the guidelines fell from 98.2% to 95.8%. The phenomenon of copper production falling short of expectations in 2023 is becoming more serious. By the end of the year, the latest production guidelines of major copper companies had been revised down by 510,000 tons from the beginning of the year, a reduction of nearly 5%, mainly affected by declining grades and rising costs.

Recently, British and American Resources revised the 2024 copper production guide to nearly 200,000 tons. The first quantum Cobre Panama project with an annual output of 350,000 tons was discontinued due to the Panamanian Supreme Court ruling that the contract was unconstitutional, reflecting the impact of extreme weather and policy factors. The trend of global copper supply falling short of expectations is expected to continue in the future.

Multiple disruptive factors may increase uncertainty about global copper supply.

Copper ore production falls short of expectations due to the following factors.

1) Exploration difficulty has increased significantly: According to S&P Global data, the global copper companies' exploration budget in the 90/00/10 years was US$60/110/26.5 billion, and newly discovered resource reserves were 6.8/4.1/0.9 billion tons. The increase in exploration investment was accompanied by a contraction in the amount of resources discovered, and the rise in exploration costs weakened copper companies' willingness to spend capital. Bloomberg expects global copper companies' capital expenditure in 2021-2025 to be less than 80% of the peak capital expenditure in the 2011-2015 round.

2) Decline in grade: From 2000 to 2022, the copper mining grade of Chile, the world's largest copper producer, fell from 1.3% to 0.6%, corresponding to a 220% increase in the total cost of copper ore. In 2022, Chilean copper production fell 8.6% compared to 2018. The decline in copper ore grade led to significant cost increases and production contraction.

3) Frequent extreme weather: Major copper-producing countries such as Chile and Peru face challenges caused by alternating droughts and floods.

4) Community and policy risks: Most of the major copper producers are developing countries with low stability and high resource dependency. Countries such as Chile, Peru, and the Democratic Republic of the Congo (DRC) frequently face community road blockages, strikes, and equity disputes. Resource protectionism has worsened the prospects for copper supply growth.

The increase in global copper supply in this round is significantly lower than the historical peak level of supply.

Based on the analysis and forecast of the world's top 20 copper mine projects and the top 10 global growth projects in 2023-2025, the cumulative increase in global copper supply is estimated to be 2 million tons from 2023-2025, which is significantly lower than the historical supply peaks of 1995-1999 (3.34 million tons) and 2012-2016 (4.14 million tons).

Among them, the main increase comes from the expansion of production of stock projects such as Molybdenum TFM, Escondida, Zijin Kamoa-Kakula, and Minmetals Las Bambas, and the release of production capacity from growth projects such as QB2, Quellaveco, OT, Luo Moly KFM, and Zijin Dragon; the main reductions were Los Bronces, Cobre Panama, and El Teniente.

The global supply of refined copper is expected to shift from a tight balance to a shortage, and the center of copper prices is expected to move upward in the medium to long term.

As multiple disturbances gradually become the norm, the increase in global copper supply is expected to continue to converge. The increase in global copper supply is expected to be 80/62/55/ 500,000 tons in 2024-2027. The year-on-year decline in TC/RC long-term unit prices agreed between major miners and domestic smelters also reflects expectations of tight copper supply.

As mine-side supply becomes scarce, the balance between global refined copper supply and demand is expected to be +17/-2/-38/- 750,000 tons in 2024-2027. If the supply gap is formed in 2025, it is expected to continue to widen, providing solid support for copper prices at the expected level. The copper price center for 2024-2025 is expected to be 9,000/10,000 US dollars/ton, respectively.

Risk Factors:

Copper production capacity growth exceeded expectations; disturbances in copper production fell short of expectations; supply of scrap copper or refined copper exceeded expectations; downstream demand fell short of expectations; the extent to which the Federal Reserve raised interest rates or cut interest rates fell short of expectations; risk of overseas mine operation; risk of market transaction factors.