Chuquicamata mine. Credit: Codelco
Mines in the biggest copper-producing nation are struggling just as demand for the wiring metal is expected to accelerate in the shift away from fossil fuels.
Chile, which accounts for a quarter of the world’s mined copper, posted its lowest monthly production in six years on Friday. Hours later, state-owned behemoth Codelco said its output woes of 2022 will only get worse this year as it strives to tap new areas of its aging deposits after decades of underinvestment.
Mines are being hampered by water restrictions in a prolonged drought as well as a string of operational setbacks and project delays as they battle deteriorating ore quality. That’s good news for copper bulls but it’s intensifying fears of a looming shortage given copper is a key material in the energy transition, used in everything from electric vehicles to wind turbines.
“It has been a complex year in terms of production, costs and surplus generation, which has challenged us to find ways to improve our future performance,” chief executive officer Andre Sougarret told reporters in Santiago Friday.
Copper futures reversed early declines Friday after the Chilean production release and were trading little changed at 12:30 pm in New York.
There’s no easy fix to the problem, with Codelco expecting production to fall as much as 7% this year after tumbling in 2022. The world’s biggest copper company sees output of between 1.35 million and 1.42 million metric tons at its wholly owned mines in 2023.
Sougarret spoke after the country’s statistics institute delivered data showing nation-wide production fell 12% in February from January, the weakest monthly result since early 2017.
For the global copper market, declining Chilean production signals further tightening of supplies at a time when Chinese demand has picked up after the easing of pandemic restrictions. Stockpiles on the London Metal Exchange are near the lowest levels in 18 years.
Still, Sougarret sees the market fairly balanced for now, predicting prices of between $3.50 and $4.40 per pound, compared with just above $4 at present.
The Chilean state-owned producer endured mishaps including a rockfall, equipment malfunctions and a dam freeze last year, pushing production down 11% to 1.45 million metric tons.
Codelco is developing several large-scale projects simultaneously in a bid to restore output by the end of the decade, Sougarret said. That’s a difficult task as the industry grapples with logistical challenges exposed by the pandemic and exacerbated by Russia’s invasion of Ukraine.
(By James Attwood)
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