The copper spot price rose 4.34% to $3.98 per pound in March (see Figure 7), breaking through the twin barriers of $4 per pound and $9,000 per metric ton during the month. Copper miner stocks provided additional leverage by rising 17.99%, while shares of copper juniors went up by 18.22%.
In previous months, copper had been holding steady due to a tug-of-war between strong fundamentals and mixed economic data. In March, the stars aligned for the copper market, as continued positive supply-demand developments coincided with strong economic data. In the U.S., moderating inflation expectations boosted market sentiment when the Fed indicated it was still forecasting three interest rate cuts by the end of the year. Central banks have largely been synchronized in this supportive monetary policy, as indicated by the 50-plus rate cuts announced globally in the last three months.
Copper has benefited from this easing cycle since easier conditions for economic growth correlate with greater demand for copper. “Dr. Copper” is an economic bellwether used in numerous areas of the economy such as construction, electronics and transport. The growth impetus could be seen, for example, in the Global Purchasing Managers’ Index (PMI) which reached 52.3 in March, a nine-month high.17 (Readings higher than 50 indicate economic expansion.)
With the improvement in business cycle conditions, copper may be set up for continued success for several reasons. For one, it has historically performed well in expansionary economic phases. Further, interest rate cuts in a non-recessionary environment have typically led to higher commodity prices (see Figure 5). Copper is predisposed to these conditions and is currently the stongest-performing commodity featured in the analysis below. Notably, copper mining stocks have also provided further leverage to increases in the copper spot price. Historically, there is a very strong correlation of 0.88 between copper mining stocks and the copper spot price, and mining stocks have typically almost doubled moves in the spot price as measured by a beta of 1.8.18
Figure 5. Rate Cuts Drive Commodity Prices
Source: COMEX, ICE, NYMEX, U.S. Federal Reserve, Goldman Sachs, U.S. Global Investors. Included for illustrative purposes only. Past performance is no guarantee of future results.
Elsewhere, treatment charges to turn copper concentrate into refined metal have plummeted in 2024. Treatment charges are the fees smelters charge miners, and a lower fee means a smaller margin for the smelter and a tighter mine supply. They have now fallen below $10 per metric ton, far below the previous $80 to $100 level.19
As these fees have collapsed, smelters' profitability has fallen to such an extent that the Chinese smelters held a crisis meeting in March in which they agreed to curtail production. Though no aggregate limits were specifically set, they pledged to rearrange maintenance work, reduce utilization rates and delay the start of new projects. Further, smelters are also buying more copper scrap instead of concentrate, causing the copper scrap discount to shrink. Following the meeting, Bloomberg reported that Chinese smelters were proposing a 5% to 10% production cut.20
Treatment charges are at the lowest levels in a decade, but they have been this low before. The last three times treatment charges fell below $30, copper prices rose 20%, 11% and 24% in the following three months (see Figure 6).
Figure 6. Copper: Bucking the Trend of Price Changes After Falling Treatment Charges (1999-2021)
Source: Copper prices from LME; TC/RCs from Wood Mackenzie. Analysis covers periods in time during which copper TC/RCs fell below $30/tonne since 1999. Included for illustrative purposes only. Past performance is no guarantee of future results.
Notably, China produces half of the world’s refined copper, and any reduction in refined copper supply can potentially lead to a supply squeeze. Going forward, we believe China’s continued investment in the midstream will drive growth in copper smelter production to outpace increases in global copper mine supply.
Chinese copper smelters are not the only ones struggling. Smelters in Zambia are also being disrupted as the country is in the midst of an El Nio-induced power crisis and has been rationing electricity.21 These disruptions come at a time when the copper market has already been pushed into a supply-demand deficit. Recent months have seen the closure of the Cobre Panama mine (which represented around 1.5% of global copper production) and copper production cuts from Anglo American. Meanwhile Codelco, the largest copper miner in the world, is producing at its lowest level in 25 years and further having to suspend mine operations in March at its Radomiro Tomic mine, the world’s twelfth-largest copper mine.
We believe that the copper market is entering a period of escalating deficits as constrained supply meets rising demand from increased electricity usage among developing countries and developed countries’ immense electricity needs for new technologies like AI. Further, we believe this will benefit the copper spot price and, ultimately, copper miners.
Figure 7. A Healthy Global Economy Boosts “Dr. Copper” (2019-2024)
Source: Bloomberg. Copper spot price, $/lb. Data as of 3/31/2024. Included for illustrative purposes only. Past performance is no guarantee of future results.