Copper hits record high as supply problems escalate
“Governments are starting to look at how they can benefit from this copper supercycle and Chile is moving down that path with an additional sales tax to fund their socialist type of government spending programs that copper revenues provide,” he said. Mr. Hynes said.
“This is concerning for medium and long term supply, as we are seeing copper programs struggling to get off the ground in Chile, not for lack of price incentive, but for the regulatory environment.”
Plans for the proposed tax hikes have reached neighboring Peru, where the main left-wing presidential candidate, Pedro Castillo, plans to impose a similar policy.
This coincides with growing social unrest at BHP’s Escondida and Spence copper mines in Chile, as workers demanding better wages and working conditions also threaten to disrupt supplies, and a union representing them calls for a strike vote.
“The pandemic has highlighted social inequalities in Chile and workers are calling for better conditions due to the economic downturn created by COVID,” Hynes said.
“Potential strike action is now emerging. This is the result of growing concerns that workers are not seeing the benefits of the high commodity prices we are currently experiencing.
A combination of these factors makes him fear that new supply may be deterred at a time when demand for copper is only increasing in a world that seeks carbon-free electrification.
“With such a tight market, we are counting on Chile and Peru to meet a great demand and if we start to implement these taxes, a lot of projects that seek a financial decision in the years to come will be delayed. Mr. Hynes said.
“This then widens the black hole that we are currently experiencing without a huge amount of new supply, so we exacerbate the short-term tightening as demand for new sectors emerges.”
Growing demand for base metal comes against the backdrop of a historically low inventory, which has just climbed above levels affected by last year’s COVID-19.
“Global stocks of visible copper remain below historical levels, but are now higher year-over-year after falling below 2020 levels for the first four months of 2021,” the analyst said. UBS Daniel Major.
“We expect restocking to continue, and further drawdowns on London Metal Exchange (LME) inventories could raise fears of a physical shortage of copper in the near term.
Last month, conditions prompted Goldman Sachs raises its forecast for the price of copper to reach $ 15,000 by 2025 and while Mr. Hynes is not quite at that level, he remains optimistic.
“These supply issues strengthen the case for significantly higher prices,” he said. “I have a feeling there is potentially more to this rally as both fundamentals improve and general investor inflows continue to rise as they seek to gain exposure to the sector that has not been liked for a few years. “
ANZ has a three-month forecast on copper to reach US $ 10,750.