Copper is booming but not everyone is striking gold

SEATTLE (Scrap Monster):  The copper frenzy shows no signs of abating, driven by growing demand from AI infrastructure and structurally limited mine supply. The World Bank now reckons the price of the red metal next year will be $13,000 per tonne, 18 per cent higher than it forecast just last April. But not all parts of the supply chain benefit equally from the boom.

Think, for instance, of the divergent fortunes of China’s miners and smelters. Given the country’s position at the centre of the global copper market — it is the largest consumer in the world — it has plenty of both. Its share of copper production has roughly doubled between 2016 and 2024, according to S&P Global, as its major mining groups have branched out overseas. And it dominates global refining and smelting, with over half of global capacity.

The current market environment favours miners, which are seeing selling prices rise much faster than unit costs. In the first quarter of last year, China’s largest miner, Zijin Mining, sold copper concentrate at an average of over RMB60,000 per tonne against a unit cost of sales of some RMB21,000, implying a gross margin of 65 per cent. A year later, that rose to 71 per cent. The lower a miner’s position on the global cost curve — and S&P Global expects Zijin to remain in the first quartil

 of the global curve for copper and gold — the higher the margin it can make. On the flipside, the economics of smelting are moving in the opposite direction. Because smelters buy copper concentrate, they have high input costs. And their profitability depends on how much they can charge in processing fees.

The answer here is not very much at all as new capacity has outstripped mining output. The annual benchmark treatment charge has fallen to zero this year, while spot charges have turned negative, according to the International Energy Agency.

For Chinese miners, at least, the copper boom is delivering a windfall: in the first half of this year, Zijin’s operating cash flow nearly doubled. That gives it the firepower to keep investing in its own projects and to acquire new mines.

Yet its shares trade just below 8 times forward earnings, a sharp discount to global peers, including Glencore and Southern Copper, despite its production scale and reserves. That suggests they are valuing it more as a China-focused producer than an international mining group.

The real opportunity, now, may lie not in betting on higher copper prices but in owning the companies best positioned to capture the value created by the boom.

Courtesy: www.ft.com