Freeport-McMoRan Inc. and Goldman Sachs Group Inc. share a bullish outlook for copper. They appear to diverge, however, on how much of an impact higher prices would have on supply growth.
Goldman analyst Nicholas Snowdon told a copper conference Wednesday that current near-record prices need to go much higher in order to stimulate a supply response. The next day, Freeport boss Richard Adkerson said market tightness “is far beyond a price issue.”
So while copper companies like Freeport, the top publicly trader producer, are raking in the cash, there’s not much they can do to significantly accelerate projects given a deterioration of deposit quality and more demanding operating environments, Adkerson said in an interview. That’s a problem, with copper demand set to surge in the clean energy transition.
“Even if the price of copper were to double overnight it would still be years before we had significant incremental production coming on,” he said. “The market is going to need it far faster than companies like ours can produce it.”
Asked about the impact of China’s recent Covid lockdowns, Adkerson said copper demand from the Asian nation “has remained remarkably strong,” with the company not seeing any issues selling its material to smelters there.
Russia’s invasion of Ukraine has less of an impact on copper than other commodities given Russia accounts for less than 5% of global supply. Still, any meaningful disruption can be felt in the current tight market, he said.
The big unanswered question is how the war will affect the global economy, and therefore copper demand, going forward. “Nobody has a clear idea right now,” Adkerson said.
Unless there’s a significant economic disruption, copper will become scarce as demand picks up from the electric vehicle and renewable energy sectors, Adkerson, 75, said. Scrap and substitution will have to help ease looming shortfalls, he added.
Phoenix-based Freeport is doing its bit to lift global production. A new underground operation in Indonesia is ramping up to become the second-largest copper mine in the world, and the company is expanding mines in Arizona and working on new technologies to extract more metal.
In Chile, Freeport is deferring a decision on a major investment until there’s greater certainty as the new government prepares to raise taxes. Besides the fiscal situation, Adkerson expressed confidence in Chile as an assembly of elected delegates writes a new constitution.
Asked if the difficulties in building new mines make buying assets more attractive, he said acquisitions aren’t part of Freeport’s fundamental strategy, although if opportunities arose they would be considered.
While the focus is on expanding existing mines, “if there was an opportunity that came about where we could create value for shareholders, we are in a position to be able to execute on that,” he said.
(By James Attwood, with assistance from Yvonne Yue Li)