Copper mines in China, the world's largest copper producer, are struggling just as demand for the wiring metal is expected to accelerate as people shift away from fossil fuels.
Chile, which mines a quarter of the world's copper, reported its lowest monthly output in six years on Friday. Hours later, state-owned giant Codelco said its 2022 production woes would only get worse this year as it struggles to develop new areas of ageing deposits after decades of underinvestment.
The mining industry has been hampered by water restrictions caused by a prolonged drought and a series of operational setbacks and project delays as it copes with deteriorating ore quality. That's good news for copper bulls, but it also heightens fears of a looming shortage because copper is a key material in the energy transition, used in everything from electric cars to wind turbines.
"This has been a complicated year from the perspective of production, costs and earnings generation, which has challenged us and we have to find ways to improve our performance going forward," CEO Andre Sugaret told reporters in Santiago on Friday.
Copper futures reversed early losses after Friday's Chilean output announcement and were trading little changed at 12:30 p.m. New York time.
It won't be easy to fix, and Codelco expects production to fall 7 percent this year, following a slump in 2022. The world's largest copper company expects production from its wholly owned mine to be between 1.35 million and 1.42 million tonnes by 2023.
Sogaret was speaking after France's statistics agency released data showing national production fell 12 percent in February from January, the weakest monthly figure since early 2017.
For the global copper market, the drop in Chilean production points to a further tightening of supply as Chinese demand picks up following the easing of pandemic restrictions. Inventories on the London Metal Exchange are close to their lowest level in 18 years.
However, Mr Sugarret sees the market as fairly balanced and expects prices to be between $3.50 and $4.40 a pound, compared with just over $4 today.
The Chilean state-owned producer suffered rockfalls, equipment failures and frozen DAMS last year, with output down 11 per cent to 1.45m tonnes.
Mr Sugaret said Codelco was simultaneously developing several large projects with a view to resuming production by 2020. It is a tall order as the industry grapples with logistical challenges exposed by the outbreak and exacerbated by Russia's invasion of Ukraine.
