Mining and metals: a focus on copper pricing

Recent volatility in copper prices has been driven by a combination of macroeconomic factors, including Chinese stimulus measures, potential shifts in U.S. tariff policy, and supply-side constraints stemming from the increasing complexity and capital intensity of copper mining. As the demand for copper remains robust, driven largely by China’s infrastructure push and the global transition towards renewable energy, the supply side is grappling with rising costs and diminishing high-grade deposits.

Chinese stimulus impacts copper demand

The economic stimulus packages introduced by the Chinese government in recent years, particularly in response to the pandemic and ongoing economic challenges, have had a profound impact on copper demand. Investment in high-speed rail, urban development, and renewable energy initiatives mean that copper has become an essential component in the Chinese economy. 

China’s green energy agenda, which includes the widespread adoption of electric vehicles and the expansion of renewable energy infrastructure, is expected to continue driving copper consumption in the coming years. Notably, energy generated from solar power in China is expected to surpass that from coal by next year.

Trump tariffs influence the copper pricing

Another significant factor influencing copper prices is the ongoing uncertainty surrounding U.S. trade policy. Under the previous Trump administration, tariffs were imposed on a wide range of goods, including copper. While these tariffs were primarily aimed at China, their broader implications have affected global copper prices by increasing the cost of imports and reducing the efficiency of trade between major economies.

Further changes to the existing trade framework could have a substantial impact on copper supply chains, either easing the pressure on prices or exacerbating the existing supply shortages. A reduction or removal of tariffs could help lower costs for US manufacturers, particularly those reliant on imported copper. However, new tariffs on Chinese imports into the USA appear here to stay.

The growing capital intensity of copper mining

While demand for copper is on the rise, the ability to meet this demand is becoming increasingly challenging. The mining of copper has grown more capital-intensive in recent years, as the world’s largest and highest-grade deposits are being exhausted. Mining companies are now forced to invest significantly in new projects, often located in remote or environmentally sensitive areas, where the costs of extraction are higher, and public sentiment towards mining in these regions can be less supportive. The lack of existing infrastructure in these areas can mean that the capital cost of production per tonne is sometimes ten times higher than it was at the turn of the century.

Mining companies are under increasing pressure to adopt sustainable practices, which add another layer of cost to the development and operation of copper mines. As copper demand continues to grow, driven by global infrastructure needs and the shift towards green energy, the supply of copper will remain constrained by the challenges inherent in mining. The industry’s shift towards more capital-intensive mining operations means that the gap between supply and demand is unlikely to close in the short term. The overall impact is that it becomes less economically viable to invest in copper mining and requires access to substantial upfront funding, resulting in market concerns over future supply.

Graham Ricketts, Head of Mining and Metals, comments: 

“The challenges for the copper market are unlikely to diminish the next few years, increasing the pressure on management teams to focus on minimising production costs and on investors to look beyond short-term challenges and recognise the positive demand outlook.” 

Conclusion

Demand is outpacing supply in the copper market and prices are subject to the influence of a range of macroeconomic and geopolitical factors. China’s stimulus measures and the uncertain future of U.S. trade policies are key drivers of price movements, while the capital-intensive nature of copper mining is creating significant challenges on the supply side. 

How we can help your mining and metals business

We work with a wide variety of clients in the mining and metals sector across the UK and globally.  

We can support your business with the following key areas of expertise: 

• Global network/capabilities, including audit and tax.
• Global mobility support and tax incentives.
• Advice on systems compliance with UK and wider regulations.
• Corporate governance, including ESG.
• Capital markets transactions.
• Model audit and due diligence assignments for lenders and developers.

Please contact David Hough if you would like to discuss how these issues may impact your mining and metals business.