Copper price bounces higher as miners cut production forecasts

The copper price jumped higher on Wednesday, rebounding from steep declines, as Antofagasta became the latest miner to cut production guidance in response to inflation, drought and maintenance problems.

London-listed Antofagasta lowered its full-year output target to a range of 640,000 to 660,000 tonnes, from 660,000 to 690,000 previously, blaming a leak in an underground pipeline at its Los Pelambres operation in Chile and continued “uncertainty about water availability”.

The company also flagged an increase in costs because of rising diesel prices and “other input prices”. Shares in Antofagasta fell as much as 1.3 per cent, recovering to trade 0.8 per cent higher on the day at 1,055p.

“The drought has continued at Los Pelambres during the period although there has been heavier precipitation in July,” Antofagasta said in a statement. “The revised guidance range incorporates a low probability negative outlook for water availability for the rest of the year.”

The price of copper, an industrial metal used in everything from household appliances to electric vehicles, rose as much as 2 per cent to $7,473 a tonne on Wednesday, pushed higher by intensifying concerns over supply. That move extended a rally in recent days, marking a reversal from last week when copper plunged to a 20-month low of less than $7,000 as fears of a global recession gripped commodities markets.

Copper and other widely used metals have been highly volatile in 2022, reflecting changing expectations about the growth and demand outlook. Just four months ago, the price of copper hit a record high above $10,600 — its value pushed up after Russia’s invasion of Ukraine compounded worries about stockpiles of crucial commodities.

The revised guidance from Antofagasta came just hours after Vale said it expected to produce 270,000 to 285,000 tonnes of copper this year, down from an earlier forecast of 330,000 to 355,000.

This was the result of longer-than-expected maintenance at its Sossego mine in the Amazon and additional maintenance at its Salobo project. Sossego was out of action for four-and-a-half months vs an original plan of 45 days, the company said.

The Brazilian miner also cut guidance for its flagship iron ore business in an attempt to prop up the price of the steel-making ingredient, which dipped below $100 a tonne this week amid concerns about waning demand in China due to Beijing’s zero-tolerance Covid policy.

“Three major global copper producers have reported in the last 24 hours. Antofagasta and Vale reduced 2022 copper production guidance and BHP unveiled 2023 copper guidance that was 70-287kt lower than [our] previous forecasts,” said analysts at JPMorgan in a note to clients.

“At the low end of these companies’ new production guidance ranges this is equivalent to 350,000 of copper removed from 2022/23 supply guidance, or 170,000 at the upper end of their new guidance ranges.

Lending more support to the copper price, Chile — the world’s biggest copper producer — is grappling with a historic drought that is entering its 13th year and is crimping production.

Analysts expect further insights into the state of the 23mn tonne-a-year copper market and supply when Freeport-McMoRan and Anglo American issue production updates on Thursday followed by Glencore on Friday.

If current prices persist, analysts suggest that new projects will be delayed and supply will peak in 2024-25, just as demand is set to increase from the energy transition. Copper is used in the wiring of electric vehicles and charging stations as well as wind turbines and solar panels.

Commodity prices have been hit during a four-month rout, as the US dollar has rallied and central banks have raised interest rates to tackle inflation. Only lithium, a battery material, and thermal coal, which is used in power stations to generate electricity, have bucked the weak market trends.