Commodity Watch: Time for a US Copper Comeback?

<div class="grid grid--33-66-col"><div class="col"><img loading="lazy" data-fr-image-pasted="true" src="/getContentAsset/e4db1c4c-2687-44cd-adbd-db1eb849e5d2/cb87803a-320c-480f-ab75-7b9029eaaf79/Ahmad-Al-Sati-new.jpg?language=en" alt="Ahmad Al Sati" title="Ahmad Al Sati" class="fr-fic fr-dii" style="width: 180px"></div><span style="font-size: 12px"><div class="col"><strong>AHMAD AL-SATI<br></strong>PORTFOLIO MANAGER<br><br><p>Ahmad is the President and portfolio manager for Gemcorp Capital Advisors LLC, based in New York.&nbsp;<br><br>Ahmad has spent most of his career in the global credit markets. Prior to Gemcorp, Ahmad was President of Pandion Mine Finance and RiverMet Resource Capital, LP - a fund focused on investing in precious metals, where he was responsible for managing the investments and the day-to-day operations of the registered investment adviser.&nbsp;</p></div></span></div><hr><p>At the start of China’s 2nd five-year plan (dubbed the Great Leap Forward), the government mandated a massive increase in steel production. China had increased steel production 5x since early ‘50s, but the Politburo wanted immediate increases. Steel production did double in ’58 and almost doubled again in ’60, but a large portion of the steel was useless, and the hikes were not sustained (production halved in ‘61). More importantly, diverting resources away from agriculture (some farmers melted their tools for steel) contributed to a tragic famine. A centralized edict aiming at instant industrialization had failed.</p><p>Twenty years on, China embarked on a different and successful effort to increase steel production by securing the entire steel supply chain. Today, China produces ~60% of the world’s steel and buys 75% of seaborne iron ore.</p><p>Steel is still important, but it is not the metal of the future. Copper is. Copper permeates our economy: transmission lines (240k miles), data centers (27MT of copper/MW) and military prowess (2nd most used metal by the DoD).</p><p>Yet, the US produces only 50% of the copper it needs despite having enough reserves to meet all of demand. The federal government is now trying to encourage more domestic copper via tariffs. But to increase production, the US must address the structural barriers limiting production across mining, refining and recycling. China’s successful multiprong approach across the supply chain is illustrative.</p><p>Mining is the cornerstone of a copper renaissance. Although 17 mines currently produce copper in the US, mine development is stagnant. It takes 29 years for a mine to come online in the US and only 3 have done so since ‘02. The US also invests less in exploration than other countries. Australia and Canada, for example, have exploration budgets ~50% larger but with smaller copper reserves. Encouraging upstream investment and facilitating mine development is a foundational step to unleash copper production. But ore is only a first step. Refined products are needed. The US has 3 smelters. China has dozens. Thus, more private sector investments in midstream is key in meeting demand.&nbsp;</p><p>Production and refining require time. Recycling may help bridge the gap. The US is a large supplier of recycling scarp, but most of it is exported. Copper recycling in the US decreased from 16% in the ‘90s to 6% today. Building more recycling capacity will help the US meet demand as it waits for new mines.</p><p>None of these solutions matter in the short run. Rather, continued engagement to strengthen the global supply chain is vital to secure the copper necessary to help the US re-industrialize and meet AI needs. The impact of any tariff increase might be muted for now because warehouses in the US have more copper than London and Shanghai combined. But as importers imbed increased costs in price, the impact will be felt. Supply chains matter and disrupting them has consequences.</p><p><br></p>