Why miners remain cautious about copper prices

Copper’s spot price hit a 10-year high of US$4.36/lb last Thursday and signs of a new supercycle are evident. However, price volatility means mining companies remain cautious.

Prices have been boosted by growing demand in China, electric vehicles and lower inventories due to the global health crisis. 

“The copper market is currently a chessboard. Supply has serious problems to cover demand as China’s consumption has been huge,” Manuel Viera, president of Chile’s mining chamber, told BNamericas.

According to Viera, copper has replaced gold as a safe haven but the spot price drop on Friday to US$4.16/lb may result in cancellations of long-term contracts. 

Jorge Cantallopts, director of studies at Chilean copper commission Cochilco, told BNamericas that the higher price has been influenced by a weaker US dollar and an improved performance of commodities over other markets. 

“However, these elements also explain recent lower prices,” he said. 

Cochilco’s latest report on the copper market says investors are forecasting that US inflation will rise faster than that predicted last week by Federal Reserve chairman Jerome Powell. 

“The inflationary risks observed in recent days have increased speculation within the commodity markets, which will probably increase volatility – which has been particularly low in the last year. This undoubtedly increases cautiousness among copper market players,” Cantallopts said. 

According to Viera, higher copper prices will have a positive impact on Chile’s GDP of 0.5-1.5%, generating over US$2bn extra for the country’s treasury this year. But in a lower price scenario, small and medium-scale miners will be most affected. 

“Chile isn’t focused on reviewing its monetary policy to be provisioned in case of lower copper prices, which will certainly affect more the small and medium-scale miners,” he said. 

Chile is the world’s largest copper producer and earlier this year Cochilco predicted an average price of US$3.30/lb for 2021 and US$3.00/lb for 2022. The agency projects a balanced market. 

On Friday, Chile’s state copper producer Codelco reported pre-tax profits of $2.07bn for 2020, up 55% on the previous year as higher copper prices boosted the company's revenues. 

Photo credit: Codelco