Supply Issues Affectng the Copper Industry
Supply Issues Affecting the Copper Mining Industry As is demonstrated by the chart below, the demand for copper has exceeded the supply brought to market since 2009. In 2011, 16. 5 million tonnes of copper were produced worldwide and this amount is expected to grow by approximately 3% annually.
Data from the International Copper Study Group (ICSG) for 2012 suggests that international demand for refined copper is expected to exceed production by about 240,000 metric tons.
The slow growth forecasted in copper supply is speculated to continue to increase the production deficit into 2013 because of both long and short term issues that affect the copper production industry. (http://www. econmatters. com/2011/12/copper-2012-supply-struggling-to-meet. html) Declining Ore Grades Man has been mining copper for centuries. As is characteristic of many other heavily-mined minerals, high-grade copper areas are becoming increasingly rare as many of the largest and highest grade areas have been discovered and depleted by mining companies.
It was common in the early 1900`s to find sites that had up to 30% copper; however, the average percentage of copper in new sites found is 1% or less and deemed low grade. Because the copper production process is energy intensive, and therefore expensive, it becomes less feasible to develop the majority of new sites that are prospected. (http://www. mining-technology. com/features/featuremineral-munching-microbes-future-metal-mining) Falling Chilean Copper Output It is estimated that Chile produces about 35% of the world`s copper supply.
However, Chilean copper production has fallen by 730 000 tonnes over the last decade. Although declining ore grades are part of the problem, as more iron ore must be processed to produce the same amount of copper creating cost overruns, supply disruptions at some of Chile`s largest mines continue to occur due to labour strikes. Labour striking tends to correlate with rises in the price of refined coppers as well as with large GDP increases, both of which have been seen over the last five years in Chile. (http://seekingalpha. om/instablog/389729-frank-holmes/247300-chart-of-the-week-struggling-copper-supply) Decreases in demand are not being met with needed foreign investment projects to develop new mines because of social factors. Since the beginning of copper exploration, the Chilean government has done little to regulate mining development. Many activists are beginning to file lawsuits and successfully halt new projects proposed by large mining companies because of the adverse effects of large scale mining on surrounding crops and water sources.
In April 2012, GoldCorp Inc annulled a 3. 9 billion dollar copper project, known as El Morro, because courts deemed that the company had not engaged in proper due diligence procedures with the local indigenous community. (http://www. mining. com/popular-unrest-casts-doubt-over-billions-in-chilean-mining-projects-10820/) Geopolitical Instability in High Grade Copper Regions Southern Africa has sparked the interest of many large copper production companies due to large, high-grade areas in South Africa, Zambia and the Congo.
However, political instability and lack of infrastructure in these areas have severely affected the exploration and development of mines as they are seen as unstable and risky to foreign investors. Also, announcements of pending government policies in favour of copper resource nationalization have caused many existing projects to be halted until firmer decisions reached by ruling political parties. (http://copperinvestingnews. om/10134/copper-mining-africa-south-africa-zambia-congo-rio-tinto-anglo-american/) The above constraints are not easily rectified and suggest that the slow growth trends associated with copper supply will continue into the short-term future. For the purpose of this commodity investment decision, it is reasonable to assume that copper prices will continue to rise as the production deficit increases.