Quantfury Gazette

Chile can’t keep up with the world’s growing hunger for copper (CME: HGU4)

by
Nathan Crooks
Quantfury Team
chile

Chile is the world’s largest producer of copper (CME: HGU4), but it’s having a hard time keeping up with surging demand that’s pushed prices for the red metal to all-time highs.

Máximo Pacheco, the president of Chilean state copper producer Codelco, told an investor meeting last week that the country’s output has been stalled for 20 years as efforts to expand aging mines or develop new ones face hurdles because of their heavy environmental toll. He just returned from meetings in Europe and said an annual shortfall projected to reach 6 million metric tons by 2032 had been the subject of much discussion. 

“They tell us that the world needs more copper and ask how much we can increase our production to help meet the unsatisfied demand, and our answer isn’t clear,” he said.

Amid a push to decarbonize transportation, with governments around the world mandating increased use of electric cars, the growing need for critical minerals and rare earths is emerging as a central paradox in the search for a greener economy. It takes lots of metals like copper and lithium to produce all the batteries needed to power vehicles and build infrastructure to generate and transport the electricity they consume, but substantial amounts of energy and water resources are needed to get them out of the ground.

“We still have too many pending issues related to building the social legitimacy needed,” Pacheco said, citing a study that showed the mining industry was viewed more poorly by the public than the oil, tobacco and alcoholic beverage industries. “This is a tremendous challenge.”

The unrelenting demand has been a boon for the price of copper, which has surged 14% this year. Shares in some of the biggest copper producers have also been on the move, with Freeport-McMoRan (NYSE: FCX) gaining 20% and Southern Copper (NYSE: SCCO) rising 32%.

S&P Global expects worldwide demand to increase 20% by 2035 to 30 million metric tons. Total production is rising around 2.5% a year, which means higher prices could be supported for years to come.

Codelco is moving ahead carefully and working to transform some of its biggest deposits like the Chuquicamata reserve from an open pit mine to an underground one, and that requires billions of dollars in new investment and sophisticated engineering in some of the most challenging environments on the planet. Chile’s production should slowly start to rise and hit 6.9 million tons by 2030 from 5.2 million tons in 2023, according to Pacheco’s presentation.

“If Chile does not increase its copper production, Chile is making the global energy transition more difficult,” Pacheco said. “That’s the message we heard clearly in Europe.”

The mining industry could seem like a strange bedfellow for the energy mix favored by those with a greener eye, but it will be a necessary one for any kind of real transition. Copper has a crucial role to play as the economy evolves, and those who produce it will have a privileged seat at the table. 

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