I am bullish on Copper

[dan_s]

Two copper companies on my Watch List:
> Ero Copper (ERO)
> Solaris Resources (SLS.TO)

Notes below are from Adam Rozencwajg:

Copper Inventory Not Signaling Recession

Driven by concerns of an impending global recession, copper sentiment remained bearish
during the second quarter. On the other hand, copper’s short-term fundamentals became
increasingly bullish. Mine supply disappointed again in the first four months of 2023,
according to the World Bureau of Metal Statistics (WBMS). Chilean production continues
to be particularly problematic. For the first four months of the year, Chilean mine supply
fell by nearly 2% compared to last year. Codelco warned that production could hit the lowest
level in twenty-five years. In June, André Sougarret abruptly resigned as Codelco’s Chief
Executive Officer after only one year on the job. Mr. Sougarret cited the numerous “complex-
ities” facing the Chilean copper mines. Chile supplies almost one-quarter of all copper
production and, in past letters, we have discussed the issues plaguing their copper industry;
in particular, declining ore grades, water shortages, labor issues, and uncertain fiscal regimes
all negatively impacted production. Unfortunately, we do not expect any of these issues to
improve going forward. Global copper mine supply contracted by 0.2% in the first four
months of 2023 compared to last year, driven by disappointments in Chile.

Meanwhile, global copper demand remained robust in both OECD and non-OECD
countries. For the first four months of 2023, OECD copper demand increased by a robust
3.7%. Despite countless bearish articles in the financial press, Chinese copper demand
continues to surge, with refined demand rising by 8% year-on-year. While China always
dominates the headlines, we believe the pivotal element of Asian copper demand is India.
We first wrote in 2018 that Indian copper demand was set to surge, very similar to China in
1999-2000. Even though few analysts have paid any attention, India’s copper consumption
grew by almost 30% during the first four months of 2023 compared to last year. Global
consumption in aggregate has surged 6% so far this year. Strong demand and weak mine
supply continue to drive inventories to near all-time lows.

Exchange inventories on the Shanghai, London Metal Exchange (LME) and COMEX fell
from a high of 900,000 tonnes reached in 2018 to only 170,000 tonnes today. Although
inventories are twice as high as the all-time low of 75,000 tonnes reached in 2005, produc-
tion has grown by nearly 60% over that time. As a result, when measured in days of consump-
tion, exchange inventories are almost as low as in 2005.

Given the low exchange inventories and the bullish supply/demand trends, we believe specu-
lators will soon panic much as they did back at the end of 2005 into 2006. Low inventories,
combined with massive short covering, spiked copper prices higher by almost 200% in just
six months. We are now potentially set up for a recurrence of that 2005-2006 copper price
spike.

Although we remain concerned about the universally bullish outlook adopted by the global
metal analytic and investment community—a topic discussed in last quarter’s letter—we
believe the rapidly tightening underlying fundamentals will push copper prices significantly
higher in the next six to twelve months. For those investors that have exited their copper
investments on global recessionary fears, we believe the copper’s weakness in the second
quarter has given investors another excellent opportunity to increase their exposure.

[Orindakid]

I have spent a lot of time studying ERO and related markets over the last year. Copper has been killed by the China recovery, subsequently ERO is down ~50% from July for no good reason. They are producing Gold and Copper in Brazil have a new mine coming on next year, have been profitable for a while. The gold Copper price ratios are very low and gold prices are up 15% YTD while copper is flat.
I think ERO will have a great 2024... check it out.