Copper Inventory Not Signaling Recession

By Goehring & Rozencwajg

Driven by concerns of an impending global recession, copper sentiment remained bearish during the second quarter. On the other hand, copper’s short-term fundamentals became increasingly bullish. Mine supply disappointed again in the first four months of 2023, according to the World Bureau of Metal Statistics (WBMS). Chilean production continues to be particularly problematic. For the first four months of the year, Chilean mine supply fell by nearly 2% compared to last year. Codelco warned that production could hit the lowest level in twenty-five years. In June, André Sougarret abruptly resigned as Codelco’s Chief Executive Officer after only one year on the job. Mr. Sougarret cited the numerous “complexities” facing the Chilean copper mines. Chile supplies almost one-quarter of all copper production and, in past letters, we have discussed the issues plaguing their copper industry; in particular, declining ore grades, water shortages, labor issues, and uncertain fiscal regimes all negatively impacted production. Unfortunately, we do not expect any of these issues to improve going forward. Global copper mine supply contracted by 0.2% in the first four months of 2023 compared to last year, driven by disappointments in Chile.

Meanwhile, global copper demand remained robust in both OECD and non-OECD countries.