Coming Copper Supply Crunch
Full story here: https://www.mineweb.com/mineweb/view/mineweb/en/page36?oid=91412&sn=Detail
Salient points (emphasis is mine):
Because the mining industry has found it extremely difficult to raise capital for new project development, future supply replacement has been badly hit building up potential output shortages ahead, with many of the few large new projects in areas of much higher risk.
Also some existing large surface mines will be forced to move underground chasing reserves leading to ever higher capital costs for development and resource maintenance which in turn will require higher prices for the mines to stay profitable. "The only way" the analysts reckon "of ensuring that these new and much more risky major projects get into production is for copper prices to stay much higher than has previously been the case. But in the short-term, all indicators point to a period in which this rally either pauses for breath, or retreats."
Back to the current situation. The copper price strength has been almost entirely due to Chinese imports, but there are signs that restocking is beginning to slow down with imports losing some of their momentum which means an OECD nation demand pick-up may be essential to maintain prices in the short term.
"We have argued consistently" says VM "that the copper price rally has overshot underlying fundamentals in 2009. We base this on the premise that at some point Chinese demand will slip below the recent record levels, and that when this happens the price would correct. However, there remains the chance that Chinese demand will stay strong until OECD demand picks up."
Should western demand continue to disappoint and Chinese demand stabilise, then the analysts feel that the copper price could slip back to around $5,000/tonne ($2.27/lb), but if signals remain mixed, as they appear to be at the moment then speculative buying could maintain prices nearer the $6,000/tonne level.
Even though Western recovery may be stumbling along in second gear, as the analysts put it, the lack of investment in new mines and expansions in the recent past, coupled with the current capital raising difficulties being experienced by the mining industry, are paving the way for severe shortages, and much higher prices, ahead.
Even if all current major planned and proposed projects come on stream, and that is a very big if, at current projected growth rates it is possible the industry could move to a small surplus in 10 years time. But with the new developments, as noted above, often in areas of far higher risk there remains the likelihood that the supply/demand situation will remain tight leading to a robust price scenario for much of the foreseeable future.
https://www.mineweb.com/mineweb/view/mineweb/en/page36?oid=91412&sn=Detail