Copper Market Can Withstand Trade Wars Because Of Growing Supply Issues
(Kitco News)- Thegrowing threat of a trade war is not great news for commodity markets as itcould reduce global demand as economic growth prospects falter.
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| Image courtesty of Panoro Minerals |
However,one junior mining explorer thinks copper is in a position to withstand theprotectionists’ assault on global markets and global growth as the base-metalsmarket faces a significant imbalance in its supply-and-demand fundamentals.
“Tradewars are never very helpful for the global economy. As we know in the copperspace, GDP growth equals copper demand growth,” said Luquman Shaheen, presidentand chief executive officer of Panoro Minerals, in an interview with KitcoNews. “There is no doubt that a trade war will impact near-term demand oncopper.”
ButShaheen added that demand isn’t the primary issue that is driving copperprices, which are above $3 a pound. Comex July high-grade copper futures lasttraded at $3.1225 a pound as prices have been trading in an elevated range formost of the year.
Adearth of investment in new copper projects in the last seven years is takingits toll on the copper market, said Shaheen, adding that this will continue tosupport prices in the long term.
“Thelack of new projects has been the root behind the drive in price from sub-$2 apound to as high as $3.35 we saw at the start of the year,” he said. “Thatsupply-side issue doesn’t turn on a dime. It is going to take many years toresolve this problem.”
Whilesome major copper companies have projects on the shelf ready to be developed,Shaheen said that the price still isn’t high enough for companies to pull thetrigger just yet. He added that because of the market’s high capital-expenditurecosts, companies need to see copper prices around $3.50 a pound to beeconomically viable.
However,Shaheen said that he sees an opportunity to market his company’s projects tohungry producers looking for feasible supply.
Whilemost companies were dealing with a bear market from 2012 to 2016, Shaheen saidthat Panoro was quietly working away developing and derisking its Cotabambasand Antilla projects in southern Peru.
“Since2012, we invested a fair bit of money in growing and defining our resource, andwe now have two copper assets that are ready to move along the developmentpipeline,” he said. “There are very few copper projects that have advanced fromearly stage discovery through to resource definition, and Panoro is one of thefew exceptions.”
Shaheenadded that he is confident that as supply continues to shrink, the work hiscompany has completed on its Cotabambas copper-silver-gold and Antillacopper-molybdenum projects will attract a major producer that will take aproject to production.
Althoughcopper prices have been capped in the $3.10 range, Shaheen said that thepotential for higher prices makes this the perfect environment for mergers andacquisitions.
“Moneyis starting to flow back into the sector and I think we are at the early partof the M&A cycle. This will only grow as the sector sees more investorconfidence,” he said.
By Neils ChristensenFor Kitco News
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nchristensen@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.