Back in my college days, I remember discussing various market trends with a group of exchange students, and the almost implicit association that arose when asking about Chile was unequivocally the same: copper. This is probably no surprise to anyone, since Chile is the world's leading exporter of the red metal, and nearly a quarter of the annual copper stock is extracted from our country. These figures clearly have an impact on both the Chilean economy and its public finances. With Codelco accounting for a quarter of Chile's extraction and the prevailing tax regime for the rest of the mining industry, the contribution made by copper mining to tax revenues is significant (SEE). 

For all of the above reasons, it is particularly important to look at the future prospects for copper, and that is what we will be reviewing this week, attempting to elucidate the reasons behind its current situation and how it might evolve in terms of both supply and demand. 

The driver to development 

The price of copper has been rising significantly in recent times, adding to a "commodity fever" that we have been observing as global geopolitical tensions increase and the strategic importance of raw materials resurfaces as a key element for development in various areas. In this context, and returning to the red metal, copper, as a conductive metal, is essential for the manufacture of any type of circuit, cable, conductor, and semiconductor, as well as being a key raw material in the transport of energy in chips and electrical equipment. Especially with regard to the latter two, its growth has increased in a trend that seems far from abating.  

Without going any further, global demand for copper is expected to grow to 42 million metric tons by 2040, up from around 28 million metric tons in 2025. Asia alone would account for around 60% of the growth in demand, as the adoption of electric vehicles and storage capacities for renewable energies increases. On the other hand, demand for copper from data centers is expected to increase by around 2.5 times over the next 15 years, driven by artificial intelligence and robotics. While the development of artificial intelligence has been declared a "national security issue" by the United States, copper is beginning to emerge as a key strategic element for the development of these capabilities (SEE). 

The bottleneck 

Although technological development trends in various fields point to consistently growing demand, the truth is that meeting this demand requires raw materials (and in ever-increasing quantities). 

How has the availability of copper evolved worldwide? Growth in recent decades has allowed around 12 million metric tons to enter the market, driven by three geographical areas and important moments: first, in the 1980s, Chile's reopening to investment was a major driver. Subsequently, the Asia-Pacific region was responsible for increasing supply between the 1990s and 2000s, and since then, it has mainly been Africa's recovery, boosted by Chinese capital. 

Figure 1: Global copper supply trends 

However, when analyzing this growth, it is important to note the obvious: copper is a raw material, and it cannot be mined without first discovering a deposit. That said, how has the discovery of these deposits evolved? Between 1990 and 2010, around 200 deposits were discovered, totaling nearly 1.25 billion metric tons of copper to be mined. Since 2010, in a context of increased environmental regulations, projects requiring complex processes for their execution and the development of markets for copper miners, around 20 discoveries have been made, totaling nearly 165 million metric tons. These are also of poorer mineral grade, falling from 2% to around 0.6%, which would entail higher costs for extracting and refining the ore. 

Getting down to brass tacks, it doesn't matter what price you're willing to pay for copper if there is no copper to sell... which leads us to believe that the new wave of supply will not be like previous ones, but will be of lower grades, from deeper deposits, in different geographical locations, and definitely at higher values. 

That said, copper supply is expected to peak at 34 million metric tons by 2030, falling to 32 million metric tons by 2040, posing a challenge for copper production and potential increases in the value of the red metal. 

Figure 2: Graph showing projected future copper deficit. Source: Financial Times with data from S&P Global. 

Finally, it is clear why future copper price projections are higher, and why there is a need to develop more supply of this material, which is fundamental for technological development. In this context, and considering Chile as the world's leading exporter of this material, it is striking that there are no companies directly involved in mining this metal in the main indices, where only Pucobre appears as a stock whose primary activity is mining this material. It also seems extremely important to understand the effects that these cycles can have on the country's tax revenues. 

Gabriel Haensgen
Portfolio Manager, Fynsa A Financial FundsGF