Yesterday was a big day for all of us here at Money Morning.
After weeks of planning, all of our editors — including those at our sister publications: Daily Reckoning Australia and Fat Tail Commodities — gathered for a day of discussion. It was a meeting to hash out new ideas and gauge sentiment on the big themes facing markets and everyday investors like yourself.
And while there was certainly some variety in the topics covered, one was a clear standout…
Net zero.
It’s clear, amongst all of us, that net zero is a nigh impossible goal. Not just because of the aggressive timeline that governments are proposing, but also because the world simply can’t get enough of the resources it needs to make it happen.
Lithium…
Cobalt…
Nickel…
Copper…
These are all key metals that are needed to bring about the green energy future. But what investors need to be asking themselves is, do we have enough to make this happen?
Because the answer for all of our editors seems obvious…
Copper market squeeze in just two years
When looking at copper, for example, the writing is already on the wall.
Just yesterday, an article came out from mining.com stating that copper concentrate will be in deficit by 2025. According to analysts, the rising processing in Chinese smelters is going to suck up excess supply and exacerbate the shortage.
As the article notes:
‘Industry data provider SMM forecast a 216,000-tonne surplus in the global copper concentrate market this year to reduce to 107,000 tonnes in 2024, and switch to a deficit of 150,000 tonnes in 2025.’
Naturally, the solution should be to just bolster, right?
If copper demand is growing this aggressively, we simply need to put forth policies and investment that support existing and new mines. But of course, the governments — the ones pushing for this net-zero goal — aren’t doing that…
In Chile this week, the national government has proposed a new tax rate for copper miners. They’ve decided to up the burden for top-tier producers by raising taxes to 46.5% for producers of more than 80,000 tones per year, and 45.55 for producers of between 50,000–80,000 tonnes per year.
For comparison, right now, copper miners in Chile tax pay anywhere between 41–44%. So while this may seem like a small adjustment, it’s still an important distinction. This decision, if it passes, will hurt copper supply from one of the world’s largest producing nations.
Not to mention a proposal from the Chilean Government for a new 1% ad valorem tax as well. Just another greedy policy that will burden miners even further.
The point is, policymakers don’t seem to understand the mess they’re creating.
Red drought
Of course, none of this is news to our commodities expert, James Cooper.
As you’ve probably heard from us by now, he is already predicting a market meltdown in copper. The ‘Red Drought’, as he calls it, is an outcome that seems destined to arrive with things proceeding as they are.
But if you simply look at the price of copper, you may get a different impression.
After all, we’ve yet to really see the reality of this looming shortage be priced in. That could be for any number of reasons, but all you need to care about is the opportunity that it presents.
As James recently told his readers on the matter:
‘…supply for the metal remains incredibly tight; output is declining at the world’s largest copper mines precisely at a moment in history when we’re looking to transition away from a 100-year-plus reliance on fossil fuels.
‘Copper is central to this energy transition.
‘But last month, Codelco, the State-owned copper mining giant in Chile, reported another 6% decline in output thanks to declining grades across its operations.
‘This was the biggest drop in output in six years. But declining grades are not isolated to Chilean mines…it’s a global trend, including here in Australia where average grades are less than half of what they were from 20 years ago.
‘This will add further pressure to supply in 2023.
‘But given the lack of new deposits coming online tends to suggest this will be a long-term supply problem…a key reason we’ll be utilising market pullbacks to capitalise.’
For this reason, if you haven’t already checked out James’s copper thesis, you should do so. You can click here to learn all about this copper shortage and how to profit from it.
Regards,
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Ryan Clarkson-Ledward,
Editor, Money Morning
