Middle East craves a copper-bottomed future

Reuters

• Copper price traditionally volatile
• Prices could rise on supply issues
• Middle East investing in production

While recent weeks have seen some major ups and downs in the price of copper, for many old hands in the sector this is nothing new.

“The one sure thing in copper,” Carlos Risopatron, director of economics and environment at the International Copper Study Group, tells AGBI, “is that you can always rely on volatility.”

On December 1 copper hit $8,450 a metric tonne on the London Metals Exchange, a four-month high. Four days later, the price was nearer $8,250, while by December 8, it had recovered to around $8,350. 

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However, a combination of supply problems, underinvestment and surging demand could result in copper becoming a much more consistently high-priced commodity.

For the UAE and wider Middle East region that has some important implications. 

As long-time major consumers of copper, higher prices and tighter supply may give added impetus to local resource development, while also charging up the use of substitutes, such as aluminium.  

At the same time, Gulf countries have become more active investors in overseas copper mines, smelters and refineries. Last week’s news of the UAE’s trade deals with Pakistan is a recent example.

Overall, “looking at future demand,” Oliver Schuh, senior director at Fitch told AGBI, “the fundamental dynamics of copper are very, very positive.”

Robust consumption

There are four major copper markets in the Middle East: the UAE, Saudi Arabia, Turkey and Iran. Between them, they account for around 5 percent of global consumption, or 1,200 to 1,250 kilotonnes per year. The UAE accounted for 405 kilotonnes in 2023. 

In terms of production, however, the region is a relative minnow. Latin America dominates output: Chile is the world’s largest producer and Peru the second. The Democratic Republic of Congo, China and the US complete the global top five.

In the GCC, Saudi Arabia is the largest producer, with mines at Jabal Sayid and Al Masane producing around 64 kilotonnes and 5.9 kilotonnes respectively in 2023. Quantities were previously produced in Oman, but the Sultanate’s Sohar smelter is now closed and a $300 million project, Mazoon, is yet to come online.

Regionally, Egypt also has refining capacity of around 4 kilotonnes per year. Iran has large reserves of copper ore – around 6 percent of the global total – but international isolation has largely left the country off the global copper map. Turkey, meanwhile, produces around 100 kilotonnes a year.

In the GCC, the copper industry is therefore largely based on imports, with all the exposure to global price volatility that implies. 

Copper wires, rods and tubes are, however, often manufactured in-country, and the UAE and Saudi Arabia both possess major capacity in these products. 

Risopatron says: “Refining copper into cables and rods, in the UAE in particular, has given the region an important role over the last seven to 10 years.”

These products are used principally in the electrical and electronic and construction sectors, where kilometres of copper cables and pipes are laid for every large real estate development.

Market makers

Copper has long been seen as a bellwether commodity, with global economic growth underlying demand and price. Yet, speculation is also often a short-term factor in pricing, as are developments in the scrap and recycling trade. 

Schuh says: “With copper at $8,000-plus a tonne, if you can get copper through recycling of waste streams, that saves a lot of money on mining, smelting and refining new products.” 

Scrap has its problems, however. Copper wire, for example, is wrapped in plastic, while copper in other electrical equipment often goes hand in hand with toxic acids and other pollutants, making recycling itself no easy or inexpensive task.

This can make the amount of copper that comes onto the market from scrap and recycling unpredictable. Scrap merchants may also wait for prices to rise before releasing their stocks, leading to further volatility.

Copper prices also tend to rise in times of conflict, as demand for copper for ammunition and other military uses spikes.

The sector is also prone to political turbulence, with strikes and sudden mine closures sometimes affecting supply. The closure by the Panamanian government of the giant Cobre Panamá mine on November 29 after big local protests is a recent case in point. 

Building for the future

Perhaps the most important problem for the sector right now is long-term under-investment.

The Covid-19 pandemic, followed by rises in interest rates to combat inflation, resulted in an investment slowdown.

Risopatron says: “With interest rates soaring, no big mining company will invest in new copper mines.” 

With copper being a “critical mineral” used in electric vehicles, solar panels, wind turbines and a whole host of electrical and electronic appliances, a surge in demand is expected during the energy transition. 

As a result, “I think we might see shortages of copper ahead, with no new mine capacity being added,” Risopatron says.

For the Gulf, that creates a big incentive for local and international copper exploration and development. 

Saudi Arabia’s Ma’aden is leading the charge, with new local exploration and mine investment, while the UAE and Saudi Arabia are both now boosting their involvement in mining companies in Africa, Latin America and Asia.

Until such new streams come online, however, recent copper prices could well be a sign of things to come.

Schuh says: “In 2023, with poor macro conditions, the copper price held up well. We expect that later in 2024, industrial activity in developed markets will pick up, too, so with that, you could even see the price go beyond $9,000 a tonne.”