Copper’s supply-side dynamics
Copper is famous for its unpredictable supply. Notably, analysts covering copper build a “disruption allowance” into their estimates. Typically, the allowance is around 5% of the globally mined copper supply.
While global iron ore and bauxite reserves are quite dispersed, global copper reserves are highly concentrated. Latin America accounts for almost half of global copper reserves. Chile has the highest reserves of copper, followed by Peru.
Copper is the key export commodity for some Latin American (ILF) countries. Australia has the third-biggest reserve of copper. But copper consumption, like that of most other metals, is concentrated in Asia, thanks to China’s appetite for everything from copper to aluminum.
Due to its concentrated mining, copper is prone to supply-side issues. In the past, issues like floods and landslides in Latin America have hit copper’s supply chain. Copper mines have also seen recurring labor issues, with labor action occurring this year among top copper miners (GLNCY) Freeport-McMoRan (FCX), BHP Billiton (BHP), and Southern Copper (SCCO).
Notably, the top two mines account for almost 9% of global copper supply. Such concentration makes copper vulnerable to supply issues. Simply put, a work stoppage at even one mine can have a significant impact on global copper markets.
Now that we’ve discussed copper’s supply-side dynamics, we’ll discuss how the copper supply has fared in 2017 in the next part.