The Doctor Is In?

And it was post-COVID vaccine in early November which has given the price its latest leg higher, the most potent one yet. Turbocharging the buying to an extent that the inflation theory gains this apparently important multi-year high.

Like Larry Summers, is Dr. Copper signaling the imminent danger of Fed and feds having done “too much?”

If there is a problem placing too much emphasis on the mainstream view of its monetary aspects it often comes at the expense of the more fundamental elements to the price action. In this case literally.

For one thing, copper mines, particularly in Chile, were shut down earlier this year along with practically everything else. In many copper production sites around the world, mining has been slow to restart. As a result, copper supply globally will fall this year by a substantial amount, a rare occurrence.

The estimates vary, of course, but a recent one from Citigroup says global metal supply will drop 3.4% from 2019. Another from Macquarie indicates somewhere around -2.5%.

The copper industry had already been facing the prospects of a cumulative supply deficit in the long run. Basically, most or all of the easy pickings have already been depleted and Euro$ #3 did most of the metal mining countries no favors by shutting off required (dollar) capital to have begun turning exploration into an investment before getting to production in the years ahead.

There’s a long lag time between finding where the copper is and beginning to get it out of the ground, and it takes an enormous and steady flow of eurodollars to get it done.

Forward-looking approximations made by UBS earlier this month, for example, forecast modest supply deficits (taking into account waste and reclaiming scrap) this year and next, very modest surpluses in ’22 and 23, followed by larger and larger shortfalls out to 2030. UBS figures that the supply gap could reach as much as 10 million tons (out of estimated future demand of 34 mt) by that point.

In order to get ahead of that imbalance, copper producers would need to really ramp up investment right around…2015. But, like 2014-16, now’s not exactly the best time for monetary and credit flow, sorry Jay Powell, not to mention all the other problems related to the 2020 situation in most places around the world. The future seems to be one where supply bottlenecks become more of a problem and little economics (small “e”) can do about it.

Given that long-run scenario, the metals industry had already experienced a severe bottleneck just this year. In the short run, too, the deficit created earlier in 2020 had left even the most nimbly funded users to scramble for material – especially in China. Uncertain as to the ultimate extent of the supply disruption, and with prices in the toilet for a time, this set off what seems to have been a true episode of hoarding.

Going back to UBS again:

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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