Mine closures and delays impact copper

Copper has had a wild ride in 2023, going from expected surplus to deficit within the last few months due to labor disputes, environmental protests, and volatile demand. The supply-demand roller coaster in 2023 was reflected in the price of this energy metal, which dropped from a high above $9,400 per metric ton last January to fluctuating to lows of around $7,800 in May and again in October before rebounding above $8,700 by year's end.

Part of the reason for the late 2023 bounce was the idling of First Quantum's Cobre mine in Panama as the company awaits international arbitration following protests and uncertainty over the Canadian company's government contract. The contract in question – deemed unconstitutional by Panama's Supreme Court – gave the miner 20-year rights for the annual price of $375 million.

The Cobre mine itself produced roughly 1% of the world's copper supply last year, but its future is now uncertain.

"To us, a restart looks unlikely before the May 2024 general elections in Panama at the earliest, i.e. once a new administration is established with which First Quantum may begin negotiating a contract," said Bank of America analyst Michael Widmer.

Widmer has removed Cobre Panama from the 2024 copper production estimate and switched his forecast from a small surplus for the energy metal to a deficit.

The analyst, however, said that while "elections could bring change, we now assume a potential restart of Cobre Panama in the fourth quarter" of 2024.

The International Copper Study Group also forecasted a narrow 2024 surplus of roughly 467,000 metric tons. However, disruptions have shaken up copper supply and prompted analysts to lower their surplus forecasts and modify price expectations of the industrial metal.

Political pressures

Much could still change with the Panamanian election in May. Among the presidential frontrunners, Ricardo Martinelli supports a renegotiation with First Quantum with higher royalties, while candidate Martin Torrijos maintains that "Panama said no to metal mining."

Despite differing political views, the economic implications of a mining halt following elections may prove to be much more persuasive.

The Cobre closure accompanies renewed protests at the Chinese-owned Las Bambas mine in Peru, which has been producing roughly double Cobre's global copper output. The Peruvian mine remains the focus of protests over its environmental impacts and a lack of support to local communities.

Deficits boost prices

Annual global copper production is expected to be around 27 million metric tons in 2024 and 2025.

Copper prices on the London Metal Exchange on Friday have maintained highs above $8,500 per metric ton partly due to Anglo American temporarily lowering production-shutting down one of the processing plants at its Los Bronces operation in Chile for maintenance and adjusting plans for its upcoming Quellaveco facility in Peru. Quellaveco hosts one of the largest copper reserves in the world, with an estimated 1.1 billion tonnes of ore in reserves at an exceptional grading of 0.55% copper.

Anglo American has lowered its 2024 production outlook by 20% from initial estimates between 730,000 and 790,000 metric tons, while in 2025, expectations were revised down 18% between 690,000 and 750,000 metric tons.