Width height coincides
BHP, the world’s number one miner by revenue, said the additional load from new projects and expansion in Central Africa, Peru, Chile and Mongolia that will come into operation through 2024 will keep the market well supplied.
BHP’s own guidance points to a 4% to 16% increase in the company’s copper production over the next 12 months, and the Melbourne-based company said the initial supply increase was set to “coincident” with higher levels of scrap “boosted by volume. The growing trend of end-of-life gathering in China”.
However, from mid to late 2020, the outlook is significantly better according to Huw McKay, Vice President, Market Analysis and Economics. This is because of what BHP calls “Electrification mega trend:
The “take off” of demand from copper-intensive sectors easier to mitigate (renewable energy generation, light transport electrification, and the infrastructure that support them together) is expected to be a key feature of industry dynamics from the second half of 2020 forward: if not sooner.
“The rapid growth of renewable energy generation and electric vehicles in China is already making a material contribution to growth, on the sidelines.”
Furthermore, BHP sees a number of factors supporting higher copper prices including “decreasing grade, resource depletion, water constraints, increased depth and complexity of known development options and a dearth of high-quality future development opportunities”:
“It is noteworthy that while there has been some activity in the project space, the response has been shy when you consider the very strong pricing we have observed and the corona effect facing copper going forward.
This underscores the idea that the industry’s collective pool of choices is constrained. It may also reflect political and political uncertainty, as Chile and Peru (together about two-fifths of global mine supply and a third of reserves) present a flexible regulatory profile for potential explorers, project developers and asset owners.”
BHP also indicates a “very significant disconnect” in the market when it comes to demand forecasts and capital spending.
The company’s internal estimates show that if demand is reasonably high, the cumulative industry-wide capital expenditure bill through 2030 could be as high as $250 billion.
But the report also draws attention to data compiled by analysts at S&P Global, which sees total expenditures in 2024 for the majority of copper producers among the 80 largest miners (excluding diversified miners) at roughly half of the peak spending levels in the 2014 calendar.
Low grade, depletion
BHP estimates that lower grade could remove approximately 2 million tons per year of mine supply by 2030, with resources likely to be removed –1½ and –2 million tons per year by this date depending on, among other things, price expectations and Regulatory environment at the time decisions are made regarding extending the life of the mine.
“Our view is that the price setting per marginal ton after a decade will come from either the expansion of a lower grade brown field in a lower-risk jurisdiction, or a new higher grade field in a higher-risk jurisdiction.
“It is unlikely that any of the metal exporters will come cheap.”
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