Andy Home highlights the impact of mine supply strikes: ROI-Copper Study Group

Copper mine supply disruptions are nothing new, but the current year has been particularly difficult for a sector racing to meet smelter demands.

According to the International Copper Study Group, several of the largest copper mines in the world have suffered unexpected production losses. The cumulative impact is expected to be felt next year.

The Group's latest statistical update stated that the tightness of the market in the segment of mined concentrates will have a significant impact on the growth rate in refined copper production in 2026.

Even though the demand growth is expected to slow down next year, it's projected that metal production will fall short by 150 metric tons. This is a major revision from the Group’s April meeting, where it expected a 209,000 ton supply surplus.

MINE SUPPLY GROWTH STALLS

Many copper mines are located in remote and difficult conditions. This means that unforeseen disruptions are a part of the supply profile.

This year is an exception of the worst sort, with several accidents occurring at the world's largest mines.

Ivanhoe Mines Kakula Mine was affected by earthquake activity and flooding in May. Chilean state-owned Codelco suffered a fatal mine collapse at its El Teniente in July, and Freeport McMoRan experienced a massive mud flow in their Grasberg Mine in September.

The ICSG's 2025 mine supply predictions have been cut by a surprising amount. Growth is now only expected to be 1.4%. This compares with a previous forecast that was 2.3%, and actual growth in 2024 of 2.8%.

This is still an extremely conservative prediction. Citi and UBS analysts, for instance, forecast "no growth", "negligible" growth, and so on this year.

HITTING THE BRAKES

It will take time for the loss of units to be reflected in the refined segment of copper.

In fact, the ICSG increased its estimate of metal production growth in China this year from 2.9% in April to 3.4% to reflect the rapid expansion of new smelter capacities.

The production will be constrained by the shortage of concentrates, which will cause growth to slow down next year.

Even this lowball number flatters to deceive. The production from secondary recyclables is expected to increase by 6.0% in the next year. Meanwhile, output straight-to-metal using leaching will rise by 2.2%.

By implication, the primary production of smelters that use concentrates as feed is unlikely to grow at all.

Copper concentrates are likely to be even more competitive due to the imbalance between availability of raw materials and demand from smelters.

SURPLUS TODAY GONE TOMORROW

The ICSG concluded that despite a tepid growth in demand of only 2.1%, the copper market will register a deficit next year after two years of surplus.

But not quite yet.

The Group still expects this year to be one of abundance, even though it has reduced the production surplus forecast to 178,000 tons from 289,000 at its April meeting.

The majority of the metal surplus is located in the United States due to the incentives created by the threat that import tariffs would be deferred on refined copper until next year.

The CME, a U.S.-based exchange, now has more copper stocks than the London Metal Exchange or the Shanghai Futures Exchange.

The total stock of copper in exchange has risen by more than 120,000 tonnes since the beginning of the year. It is likely that there are still additional stocks in storage off-market in the United States.

The current cushion of inventory acts as a counterweight against the bullish exuberance on the market.

Futures markets do, however, price in future expectations. The LME's three-month metal prices, which are currently hovering below $11,000 per ton, have a January 2026 delivery date.

The copper market is expected to be hit hard by the supply shocks of this year.

Andy Home is an author and columnist. The opinions expressed by Andy Home are his. (Editing done by Mark Potter).

(source: Reuters)