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From the beginning of this year to June, the tight supply of copper mines and the expectation of rising copper demand have jointly driven copper prices to their highest levels in several years. However, in recent weeks, copper prices have suddenly digested the previous expectations and have entered a downward channel.

Even so, Wall Street investment banks and hedge funds continue to be bullish on copper prices and continue to bet on the rise of copper prices. Several global mining giants have also begun to compete for high-quality copper mines at all costs, increasing related investments.

Has the second bull market for copper just begun?

After breaking through the $10,000 mark and then turning sharply downward, last Friday's better-than-expected U.S. May non-farm employment data poured cold water on copper prices, putting continued pressure on them. LME copper fell to $9,652 per ton on Friday, down 11.5% from the historical high of $11,104 per ton set in May, and broke the upward trend line that had been in place for several months. This week, the U.S. May inflation data and the Federal Reserve's decision will continue to determine the short-term direction of copper prices.

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Saad Rahim, Chief Economist at mining giant Trafigura, recently stated: "The volatility of non-ferrous metal prices is much higher than the level suggested by the spot market fundamentals, especially for copper." He analyzed that the speculative surge in copper prices in the first half of this year is mainly related to "investment flows." However, he also acknowledged that the closure of the copper mine owned by First Quantum Minerals by Panama will indeed eventually lead to a tightening of global copper supply. "The decline in mine supply will lead to a severe shortage of refined copper, forcing smelters to reduce production," he said. Producers such as Vale have also recently lowered their copper supply expectations for 2024 and 2025. Jack Farchy, one of the authors of "The World of Trading: Money, Power, and Commodity Trading," also said after the previous round of copper price surges that considering actual supply, the surge in copper prices is unreasonable.

However, Wall Street investment banks such as Bank of America Merrill Lynch, Goldman Sachs, and Citigroup still give high expected prices for copper. The analyst team led by Jason Fairclough at Bank of America Merrill Lynch said in a deep industry report titled "Everybody Wants Copper" released last week that due to energy transition, the growth of demand in India, and the wave of construction of artificial intelligence (AI) data centers, the market demand for copper will continue to soar. Therefore, by 2026, it is expected that the global copper supply and demand gap will double, reaching 743,000 tons. Affected by this supply and demand, copper prices are expected to rise to the level of $12,000 per ton in 2026, which is more than 20% higher than the current level.

This is similar to Citigroup's forecast. Citigroup strategists wrote in a research report in May that the second bull market for copper has just begun. The cyclical weakness of the past 18 months has suppressed the copper bull market, but now, this resistance is dissipating. The triggers for this bull market include the growth of "decarbonization" related demand (especially renewable energy, power grids, and electric vehicles) and the increase in emerging AI data center demand. Citigroup's base forecast is that copper prices will consolidate in the next 3 to 6 months, but will rise to $12,000 per ton in the next 12 to 18 months. In the bank's bull market forecast, copper prices will even rise to $15,000 per ton.

Goldman Sachs is even more optimistic, predicting that copper prices could reach this level by the end of this year. Nicholas Snowdon, head of Goldman Sachs' industrial metals research team, said in a May report that the spot market has already digested the short-term response to the rise in LME, and copper prices are most likely to consolidate in the short term, but this will be relatively short-lived. However, given the larger supply and demand shortage, Goldman Sachs has raised its target price for copper at the end of this year from $10,000 per ton to $12,000 per ton, and has raised its forecast for the average price for the year from $9,200 per ton to $9,800 per ton, and expects the average price of copper in 2025 to be $15,000 per ton. "We still predict that from 2024 onwards, the metal shortage will turn into an endless and increasing situation. In the fourth quarter of this year, there is a high probability of a copper shortage event, that is, copper inventory will drop to extremely low levels." Snowdon said.

Hedge funds such as Rokos Capital Management are also betting that copper prices may rebound significantly from the current level, even giving more optimistic expectations than Wall Street investment banks.

According to informed sources, Rokos Capital Management has been buying a large number of options in the past few months, betting that copper prices may rise to $20,000 or higher in the next few years. Hedge fund Andurand Capital Management even said that, calculated by market exposure, copper was the largest position at the end of April, and based on this, the price of copper may eventually reach $40,000. In the investor letter, the institution also revealed that the main commodity fund increased by 13% to 30% in April, mainly due to long positions in copper. "We believe that the bull market for copper has already begun, and the recent price increase is just the beginning. Copper faces a supply shortage of up to 10 years, which is caused by the increased demand brought about by energy transition and the continuous lack of investment in mine expansion." The institution wrote in the investor letter.Greenlight Capital analyst David Einhorn also revealed that the hedge fund has established a "medium-sized macro position to benefit from rising copper prices. Our current view is that copper is about to become scarce, forcing a significant increase in copper prices. In this context, the best and most direct way to invest is to keep taking long positions in copper through futures and options."

Global mining giants are busy grabbing mines and investing

With the expectation that copper mine supply is already tight and will continue to be in short supply, global mining giants have launched a battle for copper mines and have ignited a wave of related investments.

Mining giants such as Glencore and Trafigura, and even energy giants like Mercuria Group, have entered the copper mine market. In order to secure a continuous supply of copper mines in the future, they are even willing to sign super long-term contracts that do not expire until 2050, pay huge advances, and invest large sums of money to assist in the development of copper mines.

It is reported that Mercuria and Trafigura are in tender negotiations with Eurasian Resources Group, hoping to acquire the latter's copper and aluminum mines worth $1 billion, and Eurasian Resources Group only accepts advance payment transactions. Mercuria and Trafigura Group are also negotiating with Kazakhstan's copper mine producer ERG, intending to purchase the production of ERG's copper mines in the Congo for the next year, with the advance payment amount possibly reaching $1 billion. Glencore has already taken the lead by signing a contract to purchase copper mines with ERG and has increased the proportion of advance payments for related transactions. The mining giants did not comment on these news.

London-listed mining company Antofagasta signed a $1.5 billion water transportation system investment agreement with Madrid-based Almar Water Solutions and Chilean transmission company Transelec on June 5, to be used for the Centinela mining operations in Chile. The Chilean Centinela project includes the construction of two 144-kilometer-long water pipelines to transport seawater to the port and promote the expansion of the mine. The expansion of Centinela will increase the annual production of the copper mine by 140,000 tons, making it one of the top 15 copper-producing mines in the world.

At the end of April, global mining giant BHP (BHP.AX) proposed to acquire London-listed mining company Anglo American (AAL.L) for $39 billion, largely because BHP hopes to expand its copper business. Anglo American owns mines in countries such as Chile, South Africa, Brazil, and Australia. BHP is known for mining iron ore, copper, metallurgical coal, potash, and nickel. If the agreement is reached, this transaction will allow BHP to gain more copper mines.

Behind the increasingly fierce competition for copper mines is what the aforementioned Bank of America Merrill Lynch research report mentioned: under the expectation of soaring copper prices, high-quality copper mine assets have become increasingly scarce, and the value of controlling copper resources has also increased day by day. This can be seen from the fact that Antofagasta had to invest first to help improve the water supply system in order to develop copper mines. The World Resources Institute stated that nearly 16% of the world's key copper mine deposits are located in areas with severe or extremely tight water resources. According to data from the CRU Group, the output of existing mines will decline significantly in the next few years, and in order to meet the supply needs of the industry, miners will need to invest more than $150 billion between 2025 and 2032. In the aforementioned Bank of America Merrill Lynch research report, the bank expressed optimism about integrated mining giants such as BHP, Anglo American, Glencore, and Antofagasta Minerals, giving these companies a buy rating because it believes that these integrated mining giants can control "hidden" high-quality copper mines and obtain huge profits.