Bernstein senior analyst, Paul Gait, sees a huge copper supply deficit arising over the next few years.
While most mainstream bank analysts don’t see it – perhaps being too fixated on current spot prices in their analyses – global research and investment management group Bernstein senior analyst, Paul Gait, looks to the medium- and long-term view and sees a massive copper supply deficit building over the next few years and reaching as much as 1.5 million tonnes by 2018.
Speaking at the Natural Resources Forum Latin America meeting held at London’s Royal Institution, Gait also commented that he does not see the China dominated supercycle as being over, but only about a third into its full course. This suggests a major turnaround in the copper price, which is currently languishing at around the $2.60/lb ($5,700/tonne) mark, over the next two to three years.
These are controversial statements going hugely against much current thinking, but he makes some good points on his way to this prediction, but does warn that copper frequently seems to confound analysts’ predictions both on the upside and downside.
At the moment Gait says that cash mining costs are on average close to the copper price itself but that historically base metals, apart perhaps from aluminium, tend to trade at a substantial premium to cash costs – and copper particularly so to normally average 50% above costs.
When copper has slipped to the kind of relative level it is at now it has tended to make an extremely strong recovery as the price levels dissuade mining companies from investing in new projects and expansion programmes and leads to cutbacks and closures in existing operations. With big new copper mines nowadays taking perhaps as much as 30 years from initial find to permitting, processing and production a hiatus of this nature can, and will, lead to severe shortages ahead.
So we have a scenario of a potential big further lift in demand ahead as China eventually gets back on the growth track and demand recovery elsewhere, while at the sharp end – the world’s major copper mines – we are seeing declining grades with, nowadays, head grades running above reserve grades – a sure recipe for major production declines from the big low grade mining operations. This is typified by the current situation at the world’s largest copper mine, Escondida in Chile, which is seeing a grade decline, as are other massive copper operations like Bingham Canyon and Alumbrera.
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