Why 2026 could be copper's breakout year
Mine disruptions have wiped out 5% of global supply just as copper faces its worst shortage in over two decades.
Source: iStock
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KEY POINTS
- Four major copper mines have been suspended or disrupted in the past two years, wiping out over 1.1 million tonnes of production, equivalent to ~5% of global output.
- Morgan Stanley forecasts copper will face its most severe deficit in 22 years at roughly 590,000 tonnes in 2026, widening to 1.1 million tonnes by 2029.
- China's economic weakness could weigh on copper price upside, though the recent Politburo conveyed a supportive fiscal and monetary stance for the economy.
Copper is making headlines after breaking out to all-time highs, having traded sideways for more than four years. This was a long-awaited move as copper has presented itself as a relatively asymmetric opportunity, given the lack of new supply, ongoing mine disruptions and rising demand from sectors including EVs, data centres and renewables.
But despite all the factors working in its favour, and the overwhelming consensus that prices should go higher, it has taken almost four years just to move ~7% above February 2022 levels.
LME copper price chart (Source: TradingView)
Here are three reasons why 2026 could be copper's year.
#1 Supply has been vaporised
Mining is hard and pretty much all of the copper majors have the scars to prove it.
The past 12-24 months has been brutal, with four of the world's top copper mines either suspended or hit by major disruptions. This includes:
Quebrada Blanca (Teck): In October, Teck lowered the production guidance of QB2 from 210-230,000 tonnes to 170-190,000 (a 19% cut at the midpoint) for 2025 and further cuts through to 2030.
Grasberg (Freeport-McMoRan): In September, operations were suspended following a mudslide that trapped seven workers underground. This incident led Freeport-McMoRan to declare force majeure and revise its copper and gold sales forecasts downward for 2025 and 2026.
Kamoa-Kakula (Ivanhoe/Zijin JV): In May, seismic activity caused widespread flooding deep below ground. The impacted areas account for at least 70% of the complex's current production, according to Citi.
Cobre Panama (First Quantum): The mine was shut down in November 2023 after Panama’s Supreme Court declared its contract unconstitutional, leading to widespread protests. First Quantum has suspended international arbitration proceedings and is engaging in discussions with the Panamanian government regarding a potential restart.
Conservatively adding up the lost production/guidance cuts – QB2 (~100kt), Grasberg (~500kt), Kamoa-Kakula (~200kt) and Cobre Panama (produced ~330kt in 2023) – you land at over 1.1 million tonnes, equal to ~5% of global output.
#2 A historic shortage
Meanwhile, copper is set for a historic shortage in 2026. Morgan Stanley says the market is expected to face its most severe deficit in 22 years, at roughly 590,000 tonnes. This deficit is forecast to widen aggressively to 1.1 million tonnes by 2029.
Source: Bloomberg
#3 Where's the incentive?
The economics of new copper projects remain challenging. Consider the sequence of events for Teck's Quebrada Blanca (often referred to as QB2):
Initial feasibility study was completed in 2018, with capex estimates of US$4.7 billion
An updated study was completed in mid-2022, with capex rising to around US$7.0 billion due to soaring cost inflation
By late 2022, capex was again revised to US$7.4-7.8 billion, with the company citing weather, foreign exchange and sub-surface issues
In October 2023, costs were bumped up to US$8.6-8.8 billion
In the last seven years, capex estimates have ballooned 85% (and it's fair to say that a $10 billion price tag isn't far-fetched). The initial production forecast was to produce 316,000 tonnes per annum for the first five years. The recent production guidance now has QB2 producing just 170,000-190,000 tonnes in 2025, and growing to just 220,000-255,000 by 2028.
Interestingly, South Africa's Harmony Gold approved the development of its Eva Copper Project last month. The returns on that project don't quite make sense given current prices, with capex of approximately $3 billion for low teens IRR. It goes to show that some projects are still moving forward, but likely demand higher prices to be worth the risk.
Where to from here?
Copper prices are up around 30% year-to-date but only 7% to 8% versus 2021-22 highs. One of the big challenges with copper price upside is that it remains heavily tied to China's economy. China is currently suffering a prolonged period of deflation, spiraling house prices and challenges meeting its 5% GDP growth target. That said, the December Politburo meeting highlighted a supportive macro/fiscal stance, with more investment-oriented spending and "moderately loose" monetary policy at play.
The bottom line – the copper complex is starting to heat up, and it's hard to deny where it's directionally headed amid this backdrop of a growing deficit, rising demand and the lack of large-scale copper discoveries in recent years.
