Copper stocks may actually be better off than we think
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12 hours ago | Angela East
Copper supply is tightening due to global uncertainty and US-China trade tensions coupled with rising demand.
Most base metals have come under pressure since US President Donald Trump announced his wide-reaching tariffs on $US250 billion worth of products imported from China.
The trade battle has ignited fears in the market of weaker demand, prompting some already in production to pull back on supply.
This could be a boon for those copper stocks getting closer to production, with strong demand predicted and the widening gap in supply spurring the price north.
ANZ senior commodity strategist Daniel Hynes said global copper inventories are down 5 per cent in November and are now at their lowest level since July 2016.
The International Copper Study Group released figures last week that highlighted copper supply was short about 260,000 tonnes in the first eight months of this year.
By comparison, the deficit in the first eight months of 2017 was 98,000 tonnes.
Research group Wood Mackenzie sees the copper supply gap stretching to 300,000 tonnes next year and predicts that will drive the average annual price up to $US7050 per tonne.
So far this year the price has averaged just under $US6600 per tonne, which is already 7 per cent higher than last year.
China has been the biggest contributor to the growing demand, with copper imports up 17 per cent year over year in the first 10 months of 2018.
Wood Mackenzie said continued tightness in the scrap market in China had supported global refined copper consumption of 2.4 per cent this year.
This is set to continue through 2019 with forecast refined consumption growth of 2.5 per cent.
Mr Hynes said that only 40 per cent of copper consumed by China goes into manufactured goods, which would include some export driven demand.
And just 15 per cent of the current $US250 billion of Chinese imports into the US contain copper, he noted.
But Wood Mackenzie said the US-China trade war risks producers having less appetite for project investment.
“By the middle of the next decade, producers are running the distinct risk of being underprepared to respond to the combined impact of demand growth and replacing sharply falling supply,” Wood Mackenzie warned.
EVs need a sh#@ load of copper
Copper demand from electric vehicles (EV) is forecast to surge by 1.7 million tonnes by 2027.
The more electric a vehicle is, the more copper it needs.
According to UBS, the electric Chevrolet Bolt uses 80 per cent more copper than the similar-sized petrol-powered Volkswagen Golf.
The ICA says conventional petrol-powered cars contain around 9 to 22kg of copper, while a battery-powered EV contains something like 80kg and a fully electrical bus requires as much as 400kg.
ASX copper stocks
Venturex Resources (ASX:VXR) is advancing its Sulphur Springs copper and zinc project in Western Australia towards production.
The company released a definitive feasibility study in October that indicated the project would produce 65,000 tonnes of copper concentrate and 75,000 tonnes of zinc concentrate annually over a plus 10-year mine life.
The project is forecast to generate life-of-mine revenues of over $2.6 billion and will deliver pre-tax life-of-mine free cash-flow of $818m.
Venturex has been progressing talks with domestic and international banks and other financiers in relation to project debt finance to fund development of Sulphur Springs.
The company expects to receive expressions of interest in December.
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