Copper prices run signals deeper supply squeeze: Sprott

Copper’s roughly 50% surge over the past year is increasingly looking less like a traditional commodities cycle and more like a structural squeeze as mine shortages collide with rising demand from power grids, AI and defence, according to Sprott Asset Management analyst Jacob White.The metal has climbed from below $10,000 per metric ton over the past year and continued setting records this month, recently reaching about $14,545 per tonne. The rally has persisted despite mixed economic indicators, reflecting a weaker US dollar, mine-supply concerns and growing demand from sectors that are less sensitive to short-term economic conditions.“Copper is breaking away from the traditional industrial cycle,” White said.Chinese demand indicators remain mixed, elevated prices have pressured some fabricators and broader industrial activity has lacked an obvious cyclical catalyst. Instead, White sees copper consumption increasingly driven by electricity networks, AI data centres, defence systems and energy infrastructure backed by government policy, national security priorities and long-term capital spending.The shift is happening as supply constraints emerge across the copper value chain. Mine production continues to undershoot expectations, treatment charges have collapsed as smelters compete for scarce concentrate and US tariff uncertainty has redirected refined metal into the country.Copper miners are starting to reflect those conditions. They gained just 0.22% in July before advancing 12.96% through Aug. 10, while junior copper miners rose 15.06%, according to Sprott. White said investors may be looking past short-term price swings towards the earnings leverage available to producers when high copper prices coincide with favourable concentrate terms.Concentrate squeezeCompetition for copper concentrate intensified in July as spot treatment charges fell to another record low and Chilean miner Antofagasta plc shifted its mid-year copper sales away from fixed terms that had long helped establish an industry benchmark.Antofagasta has become the de facto leader on the mining side of these negotiations in recent years, White said. BHP, the world’s largest copper producer, has also priced substantial concentrate volumes against spot indexes.“Concentrate scarcity is shifting the balance of power decisively toward copper miners,” White said.Treatment and refining charges, or TC/RCs, are fees miners pay smelters to process concentrate into refined metal and provide an important gauge of the balance between available feed and processing capacity. When concentrate becomes scarce, smelters must offer increasingly favourable terms to secure enough material.Charges have swung from more than $90 per metric ton in late 2023 to below minus $150 today, a reversal exceeding $240 per tonne that White said illustrates the severity of the upstream shortage.Ordinarily, deeply negative treatment charges would encourage smelters to cut output, reducing their demand for concentrate and eventually helping restore balance. That has not happened, White said.(Source: Sprott Copper Report)Smelters earn money from more than processing charges. They can also generate revenue from sulphuric acid, gold and silver by-products, copper recovered above contracted payable levels, cathode premiums and downstream products.Sulphuric acid has become particularly important. Disrupted Middle Eastern sulphur trade and China’s suspension of sulphuric acid exports have tightened availability, raising prices. That has increased costs for acid-dependent solvent extraction and electrowinning mines while strengthening the economics of smelters that produce acid as a by-product.Combined with elevated gold and silver prices, those revenues have allowed many smelters to remain profitable and keep bidding aggressively for concentrate, delaying the production cuts that could otherwise ease the shortage.“Copper miners are benefiting from scarcity on both sides of the market,” White said.For producers, the combination is particularly favourable. Smelters are offering better terms for scarce concentrate while refined copper trades around record levels, pushing miners’ all-in sustaining cost margins to levels not seen in decades, according to Sprott.Once operating costs are covered, increases in copper prices can flow disproportionately into earnings and cash flow. White said that makes pure-play miners a more leveraged way of gaining exposure to the supply imbalance if tight conditions persist.Power demandPotential US tariffs are compounding the physical shortage by drawing refined copper into the country and reducing availability elsewhere.The US Commerce Department recommended in 2025 a universal tariff of 15% on refined copper beginning Jan. 1, 2027, rising to 30% a year later, according to White. The Trump administration separately imposed a 50% tariff on semi-finished copper products but did not immediately apply the levy to refined metal.“Tariff uncertainty is pulling copper into the US and reshaping global trade flows,” White said.The possibility of future duties has encouraged traders to move copper into the US before any levy takes effect. More than 200,000 metric tons of refined metal arrived at US ports in July, the largest monthly inflow in data extending to 2014.The Commerce Department was expected to complete its Section 232 review by June 30, but no public decision followed, leaving traders to weigh the proposed phased tariff, a lower rate with exemptions or another delay.Copper already inside the country consequently carries valuable optionality. If imports are eventually taxed, domestic inventories could become more valuable relative to metal outside the US, reducing the incentive to return stockpiles to international markets while policy remains unresolved.The effect is being felt elsewhere. Available London Metal Exchange inventories have fallen sharply and nearby contracts have moved deeper into backwardation, signalling buyers are paying a premium for immediately available copper. Chinese buyers are also competing more aggressively for metal while domestic exchange inventories remain low.(Source: Sprott Copper Report)Tariffs, however, are amplifying rather than creating the shortage. Trade policy cannot reverse declining ore grades, raise mine production or speed up projects that can require more than a decade to develop.Chile’s weakening production outlook underscores that constraint. The world’s largest copper-producing country has lowered its forecasts after disappointing first-half output and now expects production to decline in 2026 before recovering next year.Much of Chile’s major copper capacity was developed decades ago, leaving operations to contend with declining grades, aging infrastructure, water constraints and increasingly complex investment requirements. National output remains below its previous peak even as the industry needs additional supply.“Copper needs new supply, but new mines remain years away,” White said.The challenge extends beyond Chile. Mine disruptions exceeded their long-term average in 2024 and 2025, while recoveries at major operations including Grasberg and Kamoa-Kakula have taken longer than expected. Those recoveries are already incorporated into supply forecasts, leaving little room for further setbacks.Higher prices should eventually stimulate investment, but major copper mines can require 15 to 20 years to develop and substantial capital to build. Much of the project pipeline must also replace declining production at existing mines before it can generate meaningful net supply growth.AI use is emerging as another long-term demand source and its effect extends well beyond the copper contained inside data centres.BHP estimates global copper consumption in data centres could increase sixfold from about 500,000 tonnes annually today to around 3 million tonnes by 2050. The world’s largest copper producer separately expects total copper demand to rise about 70% to more than 50 million tonnes annually by mid-century.Data centres also require vast amounts of electricity, creating additional copper demand in power generation, substations and transmission infrastructure. BHP expects their share of global electricity consumption to rise from about 2% today to 9% by 2050.“The copper market is tightening before power-related demand reaches full scale,” White said.That distinction is central to White’s argument. AI does not have to become copper’s largest end market to materially affect the balance because incremental consumption is arriving when existing mine supply is already struggling to meet expectations.China is investing heavily in domestic power generation and transmission as part of an energy-security strategy that reduces its exposure to imported fuels while supporting industrial and technological growth. The US faces similar pressure as AI, advanced manufacturing and defence requirements collide with aging grids and limited connection capacity.Record prices are therefore signalling that substantially more investment is required rather than showing the supply problem has been solved, the analyst said. BHP estimates the world will require about 10 million tonnes of additional new copper supply by 2035 to balance rising demand.For miners, the implications extend beyond the copper price itself. Scarce concentrate is improving their negotiating position with smelters just as record metal prices expand operating margins, giving producers considerable leverage to continued tightness.Short-term volatility remains likely after copper’s rapid ascent. But with smelters competing for concentrate, mine development measured in decades and power-related consumption still building, White sees a market increasingly shaped by structural rather than cyclical forces.“We believe pure-play copper miners provide more direct exposure to copper’s constrained supply response and the resulting margin expansion, positioning them to benefit disproportionately if these conditions persist,” White concluded.Weiter zum vollständigen Artikel bei Mining.com Weiter zum vollständigen Artikel bei Mining.com