Last week, Resource Investing News shared thoughts on the copper price from Bruce Alway, base metals mining manager at GFMS.
In its annual Copper Survey, Thomson Reuters GFMS isn't overly optimistic for the metal in the near term, and predicts that the copper price will average $5,795 per tonne for 2015, or 12 percent lower than last year.
However, the incentive price — or the price needed to incentivize new mine development — is anticipated to be much higher, at $7,073 per tonne. Alway said that the red metal could rise to that level in the next two to three years.
Why the high price?
Explaining that prediction, Alway drew attention to the "time lag" between when prices rise, investment increases and new mines come online. "Obviously there's a near-term growth in supply because new mines take four, five, six years to bring onstream," he said, suggesting that the space is now halfway through the effects of a price run up.
However, with the low copper price, the market is now seeing the opposite effect. "For the last two years, the incentive price has been higher than the copper price, so there's no incentive to build new mines," Alway said. "If you look after 2018, there's not much [supply] coming on."That low price scenario is due to a number of factors, not least of which is weakening demand growth from China. However, Alway believes it's mostly a glut of supply coming online that's driving things. In any case, the scenario puts the market in a bit of a bind. Alway stated that some larger copper-mining companies, such as Codelco and Southern Copper (NYSE:SCCO), can and are investing "counter cyclically" — in other words, investing more in development while the copper price is still low.