Panama is set to close a mine that accounts for 1.5% of the global copper supply, causing copper prices to retreat after reaching a 10-week high. Amid increasing demand, the supply situation is feared to become even tighter.

A major mine in Panama, which briefly touched a 10-week high of $8,500 per ton, has slightly retreated in price. As the energy transition accelerates, this highlights the challenges faced by future copper supplies.

The government of Panama has announced the closure of the Cobre mine, owned by First Quantum Minerals Ltd., dashing hopes that the company might reach a new agreement to maintain operations.

Previously, the country's highest court ruled the mine's operating contract unconstitutional. The copper produced here accounts for approximately 1.5% of the global supply and is currently facing massive protests from environmentalists and unions.

The mine closure did not cause a significant surge in copper prices, indicating that the risks of the project have already been factored into the pricing, or investors are waiting for more clarity. Craig Lang, Chief Analyst at research firm CRU Group, stated:

Advertisement

"This is a significant event that increases uncertainty in the supply outlook... It may exert further downward pressure on the copper concentrate market environment, as smelters and traders seek to shift to other sources to replace Panama's supply."

Citigroup, on the other hand, stated that the current base case is for the Cobre mine to be closed, at least until after the Panamanian presidential election in May next year. Bank analysts said in a report:

"Given the significant fiscal contribution of the mine to Panama's economy, we believe the new government will seek to restart the mine... However, renegotiating the contract may be delayed."

Copper prices have retreated from their highs earlier this year due to weakening demand from traditional industries, but there is growing concern about limited long-term supply.

Under emission reduction and decarbonization policies, the use of this metal in solar panels, wind turbines, power lines, and energy storage is expected to increase.However, protests from environmentalists, rising costs, and resource nationalism have made it more difficult to develop copper mines from scratch. Labor actions have added more challenges.

Workers at MMG's copper mine in Peru began an indefinite strike on Tuesday, leading to production disruptions.

As one of the world's largest mines by capacity, it has been underperforming due to labor issues. Lang from CRU said, "For the past five consecutive years, the mine's disruption rate has been higher than the average for this century."

These events are happening as some smelters and miners are about to conclude negotiations for next year's supply contracts. Chilean miner Antofagasta Plc and Chinese smelter Jinchuan Group agreed on a copper concentrate supply contract for 2024 earlier this month, with reduced processing fees.