“Dr. Copper”: From Chilean Mines to Chinese Smelters to AI Data Centers in the US - with Kurt Nelson & Natalie Scott-Gray

[Music] Welcome to the derivative by RSAM alternatives. Send it. [Music] Hello there. Welcome back everyone to the derivative brought to you by RSAM alternatives. We were just a few weeks away from launching the new website, which will better highlight things like our SMA platform, our work with ETFs, and more. We'll still have the blog post up there. Just came out with a new one this week on how trend-following doesn't work well with our variable rewards desire, hardware, and into our brains. So go check that out, rcm-alts.com/blog. On to this episode where we talk not that shiny metal, not even that other shiny metal. It's not the McDonald's, it's not the Burger King, it's the third place, Wendy's of metal's copper. We're talking where they dig it up, where they refine it, what we use it for, and everything in between with the Kurt Nelson of Summer Haven who runs the CPXR, ex-copper ETF, and Natalie Scott Gray, from across the pond, senior metals demand analysts at StoneX. Send it. [Music] All right everyone, welcome back. We're here with Natalie and Kurt. How are you guys? Very good Jeff. Thanks. Thanks for coming on. We did a pod with Kurt about a year or so ago. So if you want his bio and all that good stuff including a little history on his nice commodity timeline behind him there, go listen to that podcast. We'll put it in the show notes. But Natalie is a first-timer. Natalie Scott Gray. Do I say Natalie Scott? Or that's your last name Scott Gray. It's got gray together. Just to make it interesting. Okay, so I'm just just going to stick with Natalie to keep it easy. So Natalie first-timer here. So give us a little background how you got into this crazy commodities world. So my career began probably when I was studying. I did a master's degree in chemistry. And this is back in 2010-11, so showing my age where I was using Rera. So that was the time. There's a lot of attention on them. I'm having then done internships in Hong Kong working for natural resource investment companies. I knew I loved the metals world. So my first real part of my career was six and a half years spent with GFMS in London as well. And there I learned how to do detailed supply and demand models in order to do twice forecasting. But I was actually largely on the precious metal side. And then I joined Stonux about six and a half years ago. And I've been doing analysis here, but it's definitely different from just doing supply and demand models in theory. Working with the trading with the breaking house on an intraday basis where a price is going to go all the way out to 10 years, 20 years. What's going to drive these prices really looking at not just the fundamentals, but the impact on the macro, particularly water investors doing to prices. Obviously tariffs have kept us very busy, but I'm based in the London office here in more gate as well with Stonux. I love it. I didn't know Stonux had a London office, but there you go. And Kurt, give it, you're there at the office. Where's the office? Give us a quick rundown. Sure. I'm in our home in Stanford, Connecticut. You know, we've been here. We started the firm here in 2009. You know, I look back on that. And I think I could have started a PE firm. We're gone into, you know, you know, tech or chips, micro, you know, microprocessors. Instead, I did commodities. It's in time for a 10 year bear market. But this should have been in PE. Those guys, they're peeing. Yeah. I know that or truck driving like my mom said, but this has been, you know, this is what we do. And we're really passionate about it. As you know, you know, we, they couldn't shake us from this market, even with the tough times in it. If anything, we're just recommitted. So we would do diversified commodities, metals and copper and particular or our focus of ours and they have been for a while. And yeah, so that's where we're busier than ever right now, since we last talked. And Natalie, if you hadn't come into the, this side of the world, would you be like making, what do they call them now? They are not fake diamonds, but the, they were like, man, fact or diamond. Yes, lab, grounds are I couldn't find the name right. Is that a metal or no precious element? No, it's not metal. It's carbon. But I think I'll stick to the metal side now. I mean, looking what's happened with the diamond prices. Unfortunately, I think it's a great invention lab diamonds for those who want more accessibility, but it's definitely. And if you look at the market, that's what happens. I mean, if we look at nickel, it's a similar type of case where they supply and demand sides in the space of a decade of transformed. So, expect the unexpected, I think. And on top copper, I feel like everyone's talking rare earths and we did a pot on uranium earlier this year is kind of a hot topic, but good old copper kind of gets forgotten about like the penny. We retired the penny here in the US. So let's start big picture. Now we will go back to you of like, why is it important? What are we doing with copper? Has it always been this important? Is it more important than ever? I'll let you just take it from there. There were like six questions in there. Yeah, and of course, what's your macro take on copper? I mean, copper has always been important. You know, it goes right back through into history. Just even think of the Roman period. But I mean copper now is to answer your question more important than ever. It's a metal that's got unique characteristics. It's got very high electrical conductivity just under that of silver. So silver is the best. If you're looking at the periodic table, but silver is much more expensive. But it's really these characteristics that it has is that it's a universal metal. So basically we call it actually doctor copper in the market because of its universal applications. It's used in construction. It's used in transport industrial machinery and more and more now why it's so important because of its electrical conductivity is that it can be used in power grid infrastructure. So when now you hear the word AI you hear data centers. It's used in electric vehicles. So areas like electrification, digitalization, new green energy, renewable energies, all of these kind of end use sectors. You can't really substitute copper out for a lot of them. There's torques in the market that aluminum sometimes is substituted for copper, but really in a lot of instances you just cannot replace it with anything else. So it is absolutely at the backbone of the industrial world, I would say. That was all just excuse to have you say aluminum, the Brits say it's so much nicer aluminium. And so Kurt what's your thought doctor copper to me? Well, two thing one Natalie quickly what's the difference between conductivity and lateral conductivity? Does that do something different or that's just what we call it? What from electrical conductivity means first last yes, or what we maybe I miss her miss her saying electrically. Oh, I heard you say lateral like what's that? I wasn't sure you many other. So just right it's a good conductor. Silver's better but much more expensive and harder to come by and Kurt I've always thought of it as doctor copper because it's kind of a macro tell right it's used in all those things. So if the economy's booming copper is going to be copper demand high and vice versa. So people would always kind of use it as a predictor. What's your thoughts is that still the case have you ever used it like that in some of your models? Well, it's certainly associated with economic productivity and economic activity that's why they call it doctor copper. So the doctor is not that it's a medical doctor said doctor economics. So you know you can read the tea leaves about where where people think the global economy is headed by the price of copper. I think that talks about the demand side, but of course copper is we think the most important thing about commodities generally are their inventories and sometimes ask well how do you you know forecast supply and the separately forecast demand I said well we look at all those but if you think about where they intersect is in the inventories. Because you could have demand go up or you could have supply go down or both. And I fear that we're going to have we're getting like the the double whammy here we're going to have. Greater demand for copper partly because of the the new energy transformation towards renewable towards electrification towards electric vehicles. Maybe there's been some slow down at the particularly in the US as we become anti you know wins farms and anti electric vehicle at the administration level consumers are voting with their dollars though we're buying EVs you know we're still interested in that in that reliability that additional clean source of energy. So that's that shift is still going to happen and now it's been there's been an accelerant that I couldn't foresee which was this. Yeah I think tens of billions under states has made hundreds of billions that's been committed globally by private industry and by governments on data centers and AI and the you know that as Natalie said it's like you need a pipeline for electricity just like you need a pipeline for gaps or oil. And so you have to build them and those things are made there's a huge need for copper you know in an in an EV itself you know in the and some of these renewable energy sources you need copper but then you need to transmit it you need to get it from a to be. I think that the, the debate. man for copper was already outstripping supply and now it's just, you know, to bar another commodity expert, you have gasoline on fire. Like, our demand is just going to become explosive. And a whole separate issue now is going to be the closure of the straight sugar moves that's happened. It's been coming up in three months and we don't have resolution yet. And I think that that's also interestingly going to affect copper as well. Let's stick a pin in that one. We'll come back to that one. Thank you for calling them wind farms or hopefully you're going to say wind turbines. It drives me crazy when certain people call them windmills. Like they're not they're not milling anything. They're big huge things generating energy. There's no milling involved. Stop calling them windmills. That's right. And then but don't you, does anyone have thoughts like the data center has become polarizing? People don't want them in their backyards. I was at a conference in Puerto Rico. They're talking about putting one underwater offshore. So it's like, are we just going to, I mean, I kind of answered the question. Me, we'll just put them out of the way. Oh, you don't want it in your backyard next to the kids' goal. We'll move it into the desert and Utah or whatever. An electrified data center, which is not only underwater, it's under salt water. Yeah. Like what could go wrong? And then Natalie, I hadn't thought of it that way. Like so it's both in the electric motors and whatnot, but it's also the transmission, the wires we're talking about. And that's an actual fun fact, right? We used to call copper the symbols HG back old-school. And it was the wire. I used to work with an old-school broker and he'd call in an order. He'd be like, we need to buy a 10 copper the wire to delineate it, I think, from the LME copper. Or the majority of products, if you look at copper, it spires and rods of copper about 70% goes into that. Really? Which is just for transmission. Into a whole load of different applications, but I would say looking particularly ahead, then it's the power transmission, which is the strongest driver for copper at the moment. So it depends on how you look at it, because AI for data centers, it's still less than 2% of copper demand at the moment. It's very fast-prowing, about 30% a year. In volume terms, it's very small. So I'm sure we'll get on to what the fundamentals for copper and prices will be driven by, but I think there's a lot of maybe misconceptions sometimes in the copper market for what's driving prices. That headline, so necessarily put out there in the newspapers that especially retail people will be reading. And it doesn't matter. My simple 10 brain here is thinking like, well, if we bury the cables, it's still going to be copper. If it's undersea, it's still copper. If it's up in the air. That's where you can have the argument with a substitution for aluminium. That's probably one of the big areas where copper is getting substituted, but if you are going underwater, or particularly kind of in cities where you absolutely need the reliance of that conductivity, then that's why copper wins out in that argument. What is the aluminum's issues? It just doesn't have the same conductivity as copper. Do you need to concentrate it more to get a similar effect? Yes, so it could be more. They could be thicker. I mean, aluminium prices are actually going off the charts at the moment as well. And then how do we separate this all from rare earths? Would you throw it into the, I mean, it's not a rare earth, there's tons of it, right? Of aluminium or copper? Copper, sorry. I would say they're completely different things. When you're looking at rare earths, you know, China and Inner Mongolia, not only do they have the majority of the deposits there, but it's also the downstream processing. So that is similar to when you're looking at copper, but when you're looking at rare earths, you're looking at heavy rare earths. They are radioactive, well, they have that material within them. So it's a very different type of kind of downstream processing. You're looking at when you're trying to refine rare earths. And let's get into that for a minute. So you have to dig it out of the ground. We'll come back to that where all these places are, but then it has to be processed, has to be refined down into usable, well, it has to be made into wire, right? But what is that refining look like? I mean, so the background for copper really is that two thirds of all copper is mined in South America, so predominantly in Chile and in Peru. Then the biggest producer on the smelting side is China. It's got absolute dominance. So it produces something like 58% of the world's copper. So a lot of the ores or concentrates are shipped over to China. They will then smelter them, refine them, and then export either products or the refined copper back to the rest of the world. So pretty much the majority of base metals China is the most important market because it's not only the biggest producer, but it's the biggest consumer of these metals as well. And the dominance of China and the fact that a lot of these smelters can be backed by the state means that if we have situations where profit margins are particularly favorable for smelters, which is something that we have, because there's not a lot of refined, sorry, there's not a lot of mind copper coming out. The mining side is got a lot of supply risks in it. China can still be producing refined metal that smelters in the rest of the world start to struggle. So the copper backdrop really on the mining side is that there was huge underinvestment for decades into the mining side. So there aren't enough projects in the pipeline now for full-cars demand. So big picture we would expect that a copper market will start moving into structural deficits by 2030. And in places like South America, it's not just that you've had in the case, let's say lithium or coal, but all the price of copper has suddenly gone up that, you know, there'll be more investment in mining and we will get this material out. The average timeline from kind of first discovery to first metal production for a copper mine has been extended from something like 12 to 17 years because of permitting issues, the fact that all grades aren't particularly good. There's a lot of issues getting water availability, you know, mining, it needs a lot of water to these processes to go through. You have a lot of social political unrest as well. So the mining side. And that saltwater, normal one? Exactly, not saltwater, the largest deposits in the world are in the Atomad Desert in Chile. So high altitudes continues. The challenges on the mining side and then even on the smelting side have only accelerated dramatically, I would say, in the last decade. And then I think you, sorry, go ahead. I was going to say you probably have on your wall there the cure for high prices is high prices, motto somewhere on your wall there. Like is that we haven't gotten there yet? The vice-first of that, the prices haven't gotten high enough for them to start these projects. Yeah, I think there's the near term, medium term, long term. And I mean, even before this conflict in Iran and in the straights of our moves, we were very constructive on metals generally because of the this is like a slow moving train rack that's coming. And we've known about it for a while that we have there's no fracking. There's no like we got a shortcut in the US. We used to, if you've been around as long as I have, you remember stories about tight oil or not tight oil, excuse me, we're going to run out of oil. Sorry, that there's going to be oil, the peak oil, sorry, peak oil that, you know, the production in the Middle East is getting less and less and we're going to be importing more and more and this is a crisis coming. And then Nassassvi is a mother of invention and we invented something, which was horizontal drilling and hydraulic fracturing in the US. You can't do it everywhere, you can do it where you have access to water and you have access to gas and oil that are locked into the geological formations. So there's places like in China where you can't do it, but we can do it across the US and it's being used elsewhere outside the US now. There is no shortcut in metals. It's still old school, you know, it's as Natalie said, it takes, it doesn't take just years in some cases over a decade to locate, permit, site, and then this is the capital intensity. There's billions of dollars to open a new mine of any kind of large scale. Those dollars were flowing into tight oil and to tight gas or into timber and farmland by investors who we work with. There wasn't any kind of excitement or interest in the metals, so it was underinvested in the 2010s. So we're coming up on this, that's why I call this slow moving train wreckage. There's no urgency to it, but it's going to be bad. And it's going to last a long time to fix. And now in the midst of that, kind of, we had a medium long term constructive view on metals. I think that Hormuz has kind of distracted the world from this slow moving supply shortage. Because we have a shortage. Yeah, we have these crises of, you know, gas is $6 a gallon. And, you know, and we worry about other things like you, it's bad if we don't have copper, but it's not like food or water and mass loss hierarchy. The, the streets of Hormuz are infecting, are going to affect fertilizer availability, which is food. And, you know, that has a lot of consequences. The Arab Spring happened because of a wheat shortage, you know, that was, so the consequences here are big, but nothing has been fixed. you know, I think, um, A couple examples that I'm now, they might have further thoughts on, but co-break Panama, this is one of the biggest new copper mines opened in the last, you know, five years. Huge investment, foreign investment into Panama, an amazing mine. And it's after years of development and financing and staffing, the way to go. And they get a new political leadership in Panama that decided that the deal was wrong. Not fair. They forced production to halt. They just actually opened. I don't think it's on the bubble. I don't know what most recently, but I think it was just a wake up call about what can go wrong with a new mine. Do you know where that's gone, Natalie? I mean, so really the issue there was environmental, what the mine would do with the country, despite the fact that revenue generated for it and the exports for Panama, but very large portion of GDPs of the country. I mean, in our view, so it's about 1.6% of global output, co-bropanar, we do expect that the mine will come back on, maybe within a year. If indeed they get, you know, the political go ahead. Now with a situation that we have with the co-o, with there just not being enough, the fact that we do have a new mine, good all grades, it seems inevitable that it will have to be supported at some point and the benefit definitely would be grades. So we do expect that mine to come on, but it coming off, I can tell you absolutely nobody in the market was expecting that to happen. So it just highlights again the very fragile supply situation, four copper, particularly not only because there's only a handful of countries that really produce it on large scale, but the risks that you have now. And you know, the second biggest producer at the moment has taken over from Peru is now the DRC and of course, you know, I don't have to tell you, the risks associated with, you know, politics, the pound. And the Republic of Congo. Yeah, or, you know, artisanal mining. And so the situation we have with copper at the back end of last year is that we were meant to see a real acceleration in mine output with new projects coming online, particularly from the DRC, but we had just a handful, Flurry is probably the better word to say, of disruptions that happened that were, you can't control. So there was flooding that happened in the DRC for the Camila Coquemine, which meant the output dropped by about 28 cents. We had earthquakes in Chile, so we saw the LTNT mine have lower production and we had issues. Again, mudslides in Indonesia, Grasberg, huge mine there, owned by free pool, they actually integrated. So you'd think it's safer that you have a mine and then you have a smelter that feeds off that. But in fact, we saw the reverse because the mine had to, you know, temporarily shut and then the smelter didn't have enough material. So even out of, you know, human errors that could happen, you know, we've seen so many disruptions that have happened in the copper supply chain that you just can't predict. So only having a few countries that produce this level of material and the backdrop we have just shows you have fragile, really the situation is. Right. I think of cocoa, right? That's the same situation. It basically comes from two countries. They had drought and look what happened like supply gets dropped in and rockets out. I don't think these countries are due for COS future where we're China and the US are fighting over all these proxies. You could say we attack Venezuela. So China couldn't get that free oil. Do we, do you see a scenario where they just US or China says, Hey Peru or Chile, here's $500 billion. We want all the access to this copper. Well, I mean, and we'll write or we'll fund your new mine, like we'll partner with you on the new mining. Here's the cash for that. I mean, but we want to China has been amazing. And in their positioning, long standing, have they been investing outside of their country because they don't really have the actual natural reserves they want. So their how a position is that they have the technology on the smelting side, which is far in advance. They actually have over capacity there. But they do need to make sure they can get those natural resources. So they will do, I imagine what they can in any circumstance to make sure that they do have those trade deals in place. And they do invest in countries all over the world across the base, metal space, particularly again, just to bring out a monument to it. They've actually in China imposed a 45.5 million land capacity ceiling in the country. So they have been aggressively investing in smelters outside of the world. So Indonesia predominantly in Angola, places across Africa. So they know what they're doing. And they will make sure that they get enough material. The irony, Jeff, is that if the US said, you know what, we don't want all this ore to go to China, we're going to bring it to the US instead if there was as competition for ore. The problem is that we've exported that pollution, you know, to other countries, including China where they embraced it. We, as Natalie said before, you have to have a sophisticated technologically advanced smelter to process this ore in scale. And historically, we associate mining and metals refining with pollution and environmental risks. It actually can be done pretty safely. It doesn't need to be the nightmare that it was, you know, 50 years ago. But our view was, listen, that's something that we don't really want in the US. We're happy for China to go develop all that. So those were decisions that we made strategically, you know, a few decades ago. So we couldn't take all that ore. We would have, just like we don't have new oil refineries in the United States for a few decades. We don't have the ability to process it. We'd have to catch up. And there's a whole lot of the global economy, which is built around free trade and specialization and globalization. And so these isolatory kind of moves, nationalism, you know, kind of do everything ourselves. That's another way to do it. But it's quite a shock for the system right now. So my point of being, I think we actually, it's our interest for all that ore to keep going to China, where they can efficiently smelter and process it. You touched on something there. Is that the dirty little secret of going green and all this electrification of like we still have to dig this stuff out of the ground and smelter it and right, there's pollution, maybe not on your street, but there's pollution somewhere in the world to get you to the same place. Or do we think net net it's better? I think it's, I don't know, your view on this Natalie, but I mean, I think it's better today, certainly than it was 30, 40 years ago. There's much more regulation, much more awareness. And technology has, you know, we don't have fracking, but we have modern ways to, you know, to refine and process in a safer way. But there is a stigma. You know, example, I grew up in Minnesota and one of the largest copper deposits in North America in the US was found up in northern Minnesota. It's a metals rich area. They call it the iron range over by Duluth as well. But this particular copper deposit is very close to the boundary waters. Which is, you know, an environmental mecca for Minnesota and really for the US. This is a incredible pristine, undeveloped, you know, wonderland of lakes and forests and so on. And so I think it was Biden stopped it. He just put a complete stop to the moving forward on it, developing any kind of mining or getting funding for it. I don't know what Trump's going to do. He's had other things on his radar right now. Although in general, he's been positive towards using our domestic resources and federal land where we need to. Mining has still been second fiddle to oil and gas. So that's an example of another mine that it doesn't exist yet. And I don't know if it ever will. The copper's there. It's in the ground. We, is there the will to extract it? I used to go up to Cuatico, which is the Canadian side of boundary waters as a kid. So I'm, yeah, keep that mine out of there. We would just drink right out of the lake. We'd just be canoeing and you just stick your cup in there and drink water right out of the lake. Probably can't do that today, but Natalie Gani thoughts on all that. Absolutely. I mean, definitely Trump's goal is to, you know, bring the smelting side downstream side to the, to the US and, you know, actually, the US has been an addicts sporter of copper concentrates. There is material there. Absolutely. Like you said, but they just do not have the smelting capacity right now on the copper side. So it's not something that will be able to happen overnight. I think the most dramatic thing that we've seen has been actually the introduction of tariffs on imports, particularly for copper. When he first came into office, he put aluminium and steel tariffs back on on imported raw materials and rivetive products as well, because he had previously done that in his first time, but the introduction or really the threat that he's going to put tariffs on refined copper imports has been one of the most significant things that has impacted prices over last year and also now starting to do that again. So we do have tariffs on derivative products of copper going into the US, but the 30th of July is the deadline that we're going to hear about it for potentially refined. to copy imports. And I would say that's arguably the most significant thing in the copper market that will happen this year, whichever way that goes. And what's that terra level? Well, that's what we don't know. So what we're waiting for is what was outlined as potentially 15% by 2027. So the beginning of 2027 and then move it up to 30% by 2028. Across the market, very divided views, some people think no tariffs will be announced because we didn't hear about tariffs on critical minerals, which was meant to be the verdict was meant to come out in October. Then we had the US government shut down. Then in January, he delayed it by 150 days. So we could have no tariffs. Some people think they'll come in as exactly as has been outlined. And some people think that maybe it'll be a lower tariff or the timeline will just be extended. But if we look back at last year, the expectation that we were going to have those tariffs, we saw huge quantities of copper refined copper being shipped into the US because the sea and me, LME arbitrage jumped to something like $3,000 premium, if not, it's more. So if we look at, I mean, you and commentary data and it's probably more material that's gone in, but it's at least 1.6 million tons of refined copper that went into the US over the course of last year and continues to go into the US now. So if tariffs go in as expected and we hear on the 30th of July that they'll come in at 15% in the beginning of 2027, we will see that. See me, LME arbitrage jumped open again and it's likely we'll have a lot more material go into the US not because they need it for demand purposes, but just because of the advantage of the arbitrage trade and that then starts to starve the market outside of the US of copper. So that's what happened the whole of last year and was the reason why copper prices initially lifted and then there's different reasons we get into the back end of why copper then jumped up. But you know, on a fundamental basis, and particularly, you know, Curt, you said, talking about stocks, Q1, they're global. And if you look at all the stocks, so Shanghai Future Exchange, and you look at LME and you look at KOMEX, they hit their highest level on record ever in Q1. So globally, it loads a couple of stocks, but if you look at where they were split, the majority sits in the US. So where there is increasing demand or stronger demand, let's say Asia and particularly China, they didn't have the material. That's how the story starts to unfold in copper when you look at it on a regional basis. And dig into that more. So that's pure traders. They're like commodity houses are buying it up without the tariff in the US and then selling it back into London and Asia. That's the arbitrage retirement. So that what happened is that yeah, so I mean also when you when you look at the different exchanges around the world to the main ones are KOMEX in the US and then LME, which is global, but London based and and then the Shanghai Future Exchange, the CME is more favored than the LME. If you're talking about speculative players that are wanting to bet on copper and copper prices going higher. So here, think your macro players, think your hedge funds, the CME is more attractive because the LME is quite a difficult date structure. So if you're going to place a bet on copper, you're probably going to do it on KOMEX. So, you know, if you were bullish on copper and there were reasons to be bullish on copper, as we've already talked about with a supply side pre the threat of these tariffs, you know, people would place positions on CME anyway, but the physical premium in the CME rose so much that that was advantageous for anyone who was trading on it. And so trading houses absolutely were trying to ship material into the US to take advantage of that high premium. In the Shanghai, so those are the three main futures. We're saying like nine, what's the percent split there? Like 80% of the volume is in the is in CME, KOMEX. I don't know what the absolute break done is it also does change quite a bit, but on the speculative side, I would say the CME is the largest, but retail, you can have retail access on the CME on smaller contracts like microcopper contracts and you can have retail interest on the Shanghai future exchange as well. But if you're talking about the Shanghai future exchange, it's protected, it's a domestic exchange, you know, not anybody can go on it that you have the IME, which is a Chinese base, but international exchange, but the Shanghai future exchange is domestically market players that really it doesn't have the international. And I see the three of those combined to like those, that's where you set global prices for copper. You know, they have different whether speculators or driven like we think of the Shanghai markets in general or the Chinese futures markets or do you have more producer hedging, you might see more of that in the US and in London. I think one of the things about exchanges is they produce warehouse stocks, they tell you what's on warrant or on exchange. You don't know what a private warehouse might hold, but you can at least observe on a regular basis the inventories that are reported by KOMEX, LME and Shanghai. And so you add those up and you get a sense of the global supply of copper, at least what's in a reliable figure. And I think now at least point was that the global supply of copper seems to be okay, but with this regionalization, you know, we're getting a lot of storage in the US and you're getting kind of regional shortages, regional scarcity because of these these tariffs. It's a completely human driven thing has nothing to do with the copper market, but these things are moving anyway. We're literally moving copper around the world because of these okay, political or economic policy changes. Yeah, so I mean, just to kind of clarify, say like, you know, if we're forecasting copper prices, the three main drivers we'd have before was what's the outlook for macro economic health, you know, that ties into Dr Copper because of its universal applications, you know, what's the path of monetary policy doing, what's the US dollar doing, how's the health of China, what's the level of geopolitical tensions, all of those things roll into the macro. Then if you're looking at fundamentals, it's looking at your supply and your demand and you're looking at your stocks, then we will look at the role of investors or speculative investors separately and how it can impact copper because we've learned, definitely in the last couple of years, particularly in 2024, that speculative investors have the ability to move copper prices completely away from what the fundamentals, all the macroeconomics is actually telling you, it's often short lived, but you know, you can get frenzied appetites, a lot of money going into copper because you'll hear a headline supply, you know, structural deficits are here, it's used in AI, a lot of money, so I mean, follows in and it can take it to nominal highs that we've had, but money that goes in often comes out quite quickly, but this US tariffs and US policy as of last year, and now this year has become our fourth price driver for copper because it's not something that we've had, and because of the serious significance in global trade on the back of expectations of what they will be. And I think Dr. Copper, you know, this notion of economic activity, it kind of goes, the copper's been around for millennia, right? That as either for trade or it, you know, used it to help, you know, develop, you know, Bronze Age, you know, copper's been around and it's been used. The Dr. Copper, I think about like the post-war war two era when it was copper being used in housing construction, copper being used in washing machines and things like that, you know, it was just a general industrial activity, but I think that's still really critical, it's really important, but this demand for these AI centers, like I think that's going to have, if we said, well, we think there's going to be a slowdown, GDP is going to still grow, but maybe be halved, you know, on a global basis. Do we think that then half of these AI centers are going to not be built? I mean, I think that's that money is being set aside separate from like large appliance purchases and, you know, home building, you know, expansion and other things. So it's like, it's like an incremental new demand, which may be more resilient to GDP. So it's like Dr. Copper in a post-doc. You're completely, I think, we're looking at where we are at the moment with US dollar strength, but particularly what's going to happen with interest rates, you know, the market has completely kind of swapped its expectations from the back end of last year, having, you know, rate cuts in the US potentially now, we won't have them all we could see hikes in the US or Europe. So focus, you know, on future demand growth for cocculate, like you said, for the traditional demand areas, it's a lot more of demand by volume, but it's the sectors that aren't going to be impacted by cyclical, which are, I think, new productive forces like AI, like electrification, digitalization, that's all completely separate and hold up on their own. Would there probably use an all out of copper and all those drones that are getting blown up over there in the Middle East, too, right? The fence, definitely, it's using a lot of defense applications, coccler. Talk me through, like, what's the base demand or supply right now? Like, how much of it are we getting out of the ground a year and how much do we think we need? You said, by 2030, it's increasing. Like, what are those numbers like? Let me try to answer it first, because I have probably the least information on this. So I'll exhaust my knowledge. and then now they can correct me and fill in the gaps. I think about like 20 years ago, we used to maybe dig up 15 million tons a year and we consume all of it. And then it was 20 million metric tons. And then now I think at least about 25 million metric tons a year, globally. So this is like how much we use up and how much we extract. And those have been really close. If you look at them over the last 30, 40 years, they grow at the same rate. And they kind of have to because there's no substitute for all these copper uses. So supply and demand are very tight. We, or say production and consumption are very tight. That's why I would think of it. I think we've been in a deficit for more years than a surplus going back over the last five, six, seven years. And so the whole, the demand and the supply of copper have grown, but it doesn't respond well to shocks. And the only thing that can really give in a short term is price. And so did he nail the numbers now? Yeah, yeah. Of course. So I mean, you're bang on it with my production for this year. We're just under 25 million that comes out. So if we're looking at refined production, so that's once it's gone to, it's melted, refined. It's high grade. We're about 28 million. Now looking at whether we're in surplus, what do you say? It goes up. The amount of refined does because you've got scrap material coming in as well. So the mine production is purely the all coming out of the ground and then refined also has scraps, so that's why it's higher. All the retired pennies? Well, I mean, recycling is, it contributes about a third of output every year. And it's definitely an area of strong interest and investment moving forward, of course, because there's not enough materials. I would need to try and recycle it if we can. I mean, so what I would just caution when we're talking about supply and demand or all markets, surplus or deficit that's the technical version, if you're saying, is a copper market in a surplus or deficit? That's refined supply minus refined demand. For that year, you don't look at stocks. So the reason why you don't do that is because stocks have been around forever, so it completely muddies the water of what's actually happening on a year-to-year basis. So if we're looking at market balance like that, then we do have a very tight market. We've got about 250,000 toned market surplus, so very small. What I would say is for a market to be hugely out of balance, either in surplus or deficit, it has to be more than 2% of what demand is for that year. So 250,000 toned surplus, basically, for quarter market balance. And in that scenario, then often copper can take its price cues from the macroeconomics or investors. Having said that, we do, if you account for stocks as well, which you should do, and you can look at things like the consumption ratio, so that is all available stocks and you divide it by demand for that year. Paint's quite a good picture where, actually, for the last eight years, we've seen the consumption ratio increase. So the amount of material around the world that's available versus what demand is has been increasing. So a building surplus, you could say, with respect to that, but where stocks are, they're not available, necessarily where demand needs it. So that's, you know, you're really able to take that with a pinch of salt. But when we are talking about my original market balance, you know, surplus or deficit, we will start to see structural deficits by 2030 developing because there is just not enough material coming out of the ground and there is no quick fix for that. And then that's when you'll start to see stocks which already above ground really start to dwindle or pull down, and that is the crux of really the long-term outlook for copper and why it's a metal of so much interest, not just for its uses, but for the fact that the supply side right now is facing structural deficits and there's very limited options of how that will actually change. - And stocks, you mean just storage, right? So they China, in particular, they store all these commodities, they've been buying it up and just sticking it in the ground or what's the rules. - So do you always to look at that? You can look at visible exchange stocks. So that is material held in the warehouses. So held in CME warehouses, held in LME warehouses. So CME, adjusting the US, LME have warehouses all over the world and then have these. - As collateral for their hedges and what else? - Absolutely. It's really what you need to know with that is actually, it's seen as the market of last result. The material that's actually held in warehouses, but yes, it's what underpins the exchanges and you can track really what's happening across the exchanges and that's very important with that material. But you will also have stocks which are not visible. So they could be in warehouses like China bonded warehouses where they're not technically in China yet until they pulled them out and then you have to pay tax on it. We definitely now have a new scenario where trading houses have become more integrated into the value chain for copper. And they can hold material that can be very difficult to track how much material they have. And then on top of that, you have your strategic stockpiling which China has long been doing. Now we know the US is wants to do it as well. They announced project, but I believe the back end of last year what they want to have two months worth of supply of critical minerals, copper was deemed a critical mineral in November last year. But also around the world, other countries have started to say they want to build strategic reserves of their own. For China, it's very difficult to know how much material is there. We estimate minimum two million tons. So then if we go back to the US and I say about 1.6 million tons went in in the period of a year, that shows you how significant that draw was on tariffs. But that's where material is held in the copper market. But we have to appreciate that a lot of it may not be necessarily printed visibly for us to know where it is. And that starts to make things a little bit more challenging as well. - What are you guys thought if I put my contrarian hat on and be like actually these real tento, these guys are nailing it, right? They haven't had to spend the money. They've been perfectly in line with the production to supply the market. They're making money like that. They're doing what they're doing, and I could argue they're doing what they're supposed to do. They're like keeping their shareholders happy. But you're saying they can't just turn on the spicket. They can't just say like, okay, now we need to increase. I don't know, I'm up two minds of like one, they seem like they've done it well to this point 'cause there hasn't been a big spike. Copper's been relatively subdued, or are they doing it on purpose and saying like the malinvestment will drive up copper and then when we put in the new mining will make more money? I don't know if there was a question in there, but I think it's a lot. - They had to play defense for a long time. Remember this copper being around $1,400, or say $14,000 on the LME for a metropolitan kind of, close to all time highs I think, Natalie. But that's sort of a newer phenomenon. (laughing) No one cared about metals. Prices were declining 15, 10 years ago. So these, you know, when you think about Rio Tinto or these other Glen cores or other mining companies around the world, they were trying to survive. They didn't have access to capital but banks were starting to pull back of their financing to them. So if they could get financing it cost more. Yes, this is a relatively newfound thing that they're making a lot of profits. And they're not aggressively expanding mine production or opening new mines 'cause they're just coming out from under like a decade of really hard time. There's something else I wanna talk about too 'cause these, I don't disagree at all with Natalie's idea about like 2030 being sort of the consensus about when things are really gonna start to hit a wall of demand versus supply. Those are projections based on kind of what we know now. You know, three years ago we weren't talking about AI data centers and they're demand for, you know, copper. So the copper market itself doesn't deal well with these sudden shocks. And one of the things we know about commodities, if you think about a normal bell shaped curve, equities tend to have a fatter left tail. Like with the bad news tends to take things down sharply. More than you get like the, you don't get the money more in news for a stock where hey, you know, we just figured out how to cut profits margins or cut our expenses by 20% over the weekend and the stock pops 20%. Usually it says how negative like there's a-- - The CEO is on the jumbo tronet, the concert with not his play. - There you go. - Yeah, that was a very expensive, cold play concert. So the opposite is true of commodities. Bad news tends to be good for price. And so you have this fatter, what will all call fatter right tail? - Yeah, both tails. - Yeah. And so let me just highlight one that we can talk about briefly around copper, which is the stretch of hormones closing everyone. And the first thing you focus on is oil and maybe you focus on natural gas so that we don't worry about that as much here. But I can tell you that the Philippines and Japan and a lot of countries are really freaking out. They rely so heavily on the Middle Eastern natural gas. But another, a sort of a sleeper that you aren't aware of that I've only become informed about in the last month or two, it is sulfur. So 50% of the world's sulfur goes through the streets of hormones. And you need sulfur to make sulfuric acid, which is critical in some of the leaching and processes used for some of the, you know, the smelters or the refiner's. It's pretty. critical to go from an ore to a refined copper. A lot of these shortages that are going to happen because of the straits of our movies being closed for so long haven't been felt yet. We've been in this weird fancy land where the ships that left in February were arriving in March and they were arriving in April and they're getting where they needed to go. And it's only now in May and we're really going to start to feel it in June and God help us if we're still in July that now we're going to run out and so the things that we're going to run out of in addition to just oil and gas it's going to be you know urea and nitrogen-based components for fertilizer. Selfers also needed for fertilizer but it's needed for sulfuric acid to help process copper. Whenever we turn those ships back on and we start moving they can power through the straits it's going to take another six weeks then don't give it as close to go. So this is going to get out to return to go back right that just full stop. There's a lot of dominoes that haven't people haven't seen how they're lining up and they haven't really fallen yet but some of them are really big dominoes and I think I'd be curious now if you think that's sort of like a surprise that the market's going to wake up to at some point you the specialists are going to get it they're going to see it but I haven't seen that for a through price yet. I mean I would argue on both sides of that so yeah the sulfur store in sulfuric acid definitely in the copper market has been something that's ever even spoken about for the last six weeks I would say particularly we had the world's biggest copper conference down in Santiago in Chile which was beginning of April and that was I would say the biggest topic. I mean what I would say on both sides is I think for energy prices particularly we haven't seen the price reaction potentially that we should be seeing particularly if we look back to you know when Russia invaded Ukraine back in 2022 the issue that you know oil prices were higher than they are today and that was on the expectation because we had supply concerns about what sanctions we're going to do but actually Russia just had to divert where that energy was going we're in a much worse situation in the Middle East where you know energy exports have just been completely curtailed because they cannot come out or you know they'll start to slow down and the impact of that's much more serious and I think we haven't seen it in the pricing because there is this market optimism that there will be an end to the war. So looking at supply and demand ultimately and I'm going to come onto the supply risk so that very real for copper was sulfuric acid but I'm also cautious that I just do not think the market's priced in what will happen with demand destruction we haven't seen it in any of the figures like PMI, a manufacturing figures and the reason for that is I think there was front loading ahead of the war we've also had China tax rebates since the first of April they're getting rolled back so there's a lot of front loading of exports not trying to get to your technical but I and we always see this and we saw this again in 2022 so if I'm talking about metal prices now in that period we saw nominal highs in Q1 but then by Q3 of that year we had the worst quarterly all in the index for base metals since the global financial crisis because of demand destruction so I do think that's something we haven't seen yet and it does not supply that's not a good thing but if demand really does get hit seriously then it becomes maybe secondary having said that I mean the background with the with the sulfur story is that yeah sulfur prices are up about 80% because of its use of fertilizers China the biggest export market in the world for free or a acid has band export they actually limited quotas up until April and then now since the first May they've banned exports of sulfuric acid so for the copper market about 11 it's about 17% globally there's two ways to produce copper but the one that uses sulfuric acid is solvent extraction and electrolyte winning so that's 17% copper 60% of that method is used in the DRC the second biggest producer in the world and about 6% in Chile itself so you're correct I would absolutely agree with saying that the risks are building there because so far it's been the jump in sulfur prices and then sulfuric acid prices that have hurt output you know for these producers but it will be the physical scarcity of either being able to get hold of sulfur or sulfuric acid that will start to play on the supply side and that hasn't been priced in I would agree with you there has been a jump on the risk but you know we haven't seen any producers in the DRC have to pull back production yet because they have stocks of about two to three months worth of sulfur and also the nature of that type of processing is used you spray the acid on your rocks and then that takes time as well but the risks are very real and we're starting to approach them as we get into the summer months yeah I was going to ask you to dig back into your chemistry days and tell me how that works they so they spray it onto the rocks and what happens? Well that's exactly you know as the description is solvent extraction and then electrolyte winning so you will put the acid in to break it down and then you'll go to the electrolyte winning process and that's one of the ways which kind of hydro metallurgical way of processing rather than pyrometological which means with heat and smelting which is the vast majority particularly in China where copper is actually smelter on degree heat and that produces a purifying copper and when I'm thinking of these big smelting plants I'm thinking of like Gary Indiana and all the steel plants and the blade and the flaming and all that so that's what it looks like just heat and not to the same degree that aluminium is or steel they're much more energy intensive than copper is okay but you know along the same lines where it's got a big accomplishment to be using heat for the smelting process versus the hydro metallurgical method. Let's finish up with the investment right sounds like we're all bullish a commodities B metal C copper so why should someone look at copper the commodity versus copper miners what's your thoughts on that? Yeah you can see different metals play for example so you can buy gold right people buy gold that's been probably as old as people extracting and holding copper as a human society you can buy GLD you can buy you know an ETF you can buy gold bars you can buy a macaqueco or you can buy gold miners I think you can buy copper miners you know you can ask something you can do there's their ETFs or portfolios for that our view is that neither one's right or wrong but just understand in a business you know and you're investing in an economic enterprise so they have labor costs they have financing costs they have idiosyncratic risk you know for example let's go back a British company BP if you go back 15 20 years you can say well trading futures is hard and I don't have you know just a hassle I just have a brokerage account I can just buy British petroleum I just buy BP and I'll get oil and then we had instead of getting an oil company or oil you got an oil spill and you know the price of oil doesn't move and the price of the stock falls 50 percent so that's how they're different I think that the benefit of investing directly into a commodity instrument like copper is that it's a pure play on the economics of the metal itself or of the commodity itself there's nice inflation characteristics you know the inflation beta of an equity investment is very different than the direct drive benefit of a commodity I think when you think about inflation like what does it mean what does that even mean there's different definition of inflation the most basic way is it's the consumer price index year-over-year change so that's what the that's what you hear reported is what the Fed and central bankers around the world look at before CPI it's PPI the producer price index that's kind of leads CPI going up so the producers pay a higher price they don't pass it on to consumers and then eventually it flows through to CPI when they can't take it anymore and they raise prices what happens before PPI commodity prices go up that's that's that's what happens so I think that you have a stronger relationship there and I think part of the interest just generally because we have seen more interesting commodities than we've seen in over a decade and I think part of it is because of you know the fear of inflation and inflation is going to be all things being equal good for commodities and commodity prices and it's going to be quite painful we know this for financial assets like stocks and bonds but do you think copper gets left behind because it's right like $120 for one barrel of oil what would you say it is 14,000 dollars for a whole ton of copper yeah I think but what becomes more interesting is like looking at the looking at the supply demand balance and as Nally said you know they're they're they're fairly tight and they have been historically but we're coming up on you know unknown shortage if everything stays the same and I think that's a little different like we we're not going to run out of oil in the United States we have a shipping logistics problem in the Middle East right now um but you know we're not we still have a lot of infrastructure around the world for extracting and refining oil and energy products and we're just under invested in metals So I think what's more interesting about copper is that it moves into shortage more often. Aluminum rarely does. I mean, there is an issue right now because of the cost of power going up a lot and actually a smelter and guitar that got hit while it was processing aluminum. And I think the aluminum froze up inside of it. So it's going to take some time to get that going again. But, you know, copper is one of the metals that we do have sort of just in time inventory for generally over time, having this disruption to supply just curious this really, really sharp price impact. So I just add to that that also I think this move towards just TGIC stockpiling for copper is only going to increase the fact that it's now critical mineral in the US. You know, it's really becoming as security concern if like more than anything actually and all countries want to be able to make sure that they do have copper and that theme I think is it isn't going to change and that's something that has altered towards copper in the last five years but really been accelerated in the last two. And I'm going to say you write gold silver copper, the three classic metals. People have been retail has been crazy on gold then it leaked into silver earlier this year and then that famously unwound and all right. But do you feel like copper will be like kind of people will start to wake up and that retail flow will come in copper. I mean, it already did say the back end of last year, you know, we had a perfect storm of the driving factors on all of the driving factors. But I would say why we went into 13,000 why we went into 14,000 was this spillover effect. I mean, we had the US currency debatement trade going on and that was the frenzied appetite that, you know, you found line for precious metals, but it did spill into copper and it did spill into aluminium as well. And we can see that from the retail interests on the Shanghai future exchange and comics that absolutely sold the back end of last year. And some of that momentum has come out, but I think the long term strategic views if we're talking again about macro money hedge funds, if they're placing bets for the longer term, copper is something that is already very much in their sites and probably will become more and more. And you know, anecdotal story of work in the metals industry for 13 years and my husband's grandfather asked me about how can he buy copper the other day that that shows you, you know, the retail coming in and actually stone ex ourselves on our stone ex balloon platform in the next couple of months. We already sell gold and silver bars and coins, but we're going to be selling copper bars for the first time as well. What will a copper bar, who can do that quick math? What will a copper bar cost? I guess it depends on the size. I think there'll be a variety of options. It's a metric time. So you have to, you know, bring a truck. Exactly. He's not quite as fresh as metals. Before we leave, Natalie, what are we'll think of something for you next Kurt, but we usually finish up with something fun. So I'm going to give me your Mount Rush more. That's a US thing. Sorry. Your top four. So you don't have to pick your favorite thing. Top four London restaurants. Oh, I didn't prep you for that. Sorry. So I love Italian. I think the river cafe is really good. There's somewhere that I want to go. I haven't gone called river. I went to a small little French place in Cobbent Garden called the social. That was wonderful. Very good for a date night. And I went to Klaus Magori, a couple of weeks ago, also in Cobbent Garden. Very beautiful. I would recommend that. And there's a lot of good cocktail spots before there as well in that area. So it's a nice evening out. And my, we talked about the lab-grown diamonds. What's your, do you have any hacks for men trying to find nice gifts for their wives? Is there like a copper bracelet? Like, what's the best value for, right, is a metals person? What's the best value they can find? Well, for jewelry? Or, yeah, I mean, I see I think that three diamonds are a wonderful thing when I was in Hong Kong last year for LMEE Asia Week. One of our colleagues was going to get has become engaged now. But I could overhear him talking about not being sure what to get. And so I had to take him by the hand. And I took him to jewelry stores to look at normal diamonds and also to look at lab-grown diamonds. And I think if you want to have something like a tennis bracelet or something with a lot of diamonds on it, I would go lab. And there's nothing wrong with me. But to me, right? I have problems sometimes like buying gas or doing like I'm in the airport. I can't, I won't convert my currency because I know too much about the prices. So do you run into that problem? Like, this is stupid. This thing is like X, what it should be for this. I mean, the amount of metal is now is not a great time to be buying gold jewelry for silver jewelry. Exactly. Yeah. All right. Kurt, how about we'll go with your favorite New York City restaurants, right? You could go stand for sure throughout your Connecticut if you want. I'll let you pick Connecticut or New York. Sure. Wow. So in New York, I just last week, we, so we went to the family, went to Broadway and we saw Daniel Radcliffe in something called every brilliant thing. Which was a blast because it's an audience participation play and it was for my wife's birthday. And I got her to be in the play briefly. So I kind of, she got to read a read a business, read an index card and have a line. I said, you can say you were on Broadway with Daniel Radcliffe. We went to this amazing pizza place called Don Antonio, which Oh, yeah, I know. The best thing about it is that it was walkable distance from Times Square. So, you know, that was, that was fun. And it was nothing like a thousand degree authentic Neapolitan pizza oven to make you food every 30 seconds on demand. Another New York City going out the other way, like for like a fancy night might be in there a couple times code to COTE. It's, I think it's the only Michelin star Korean barbecue or Korean steakhouse Korean barbecue place in the US. And it, and it, and it deserves it. And it costs like it has one, but we've had some really special dinners there. So, it's so funny. I mean, that Michelin is attached to fancy restaurants, right? Like I know back in day, it was like a higher company. Yeah. How far you would drive like the food was worth driving that far to get, but I was like the oddest branding of all time. Awesome. Anyone have some last thoughts? We, we're, should we wrap it there? No, I just really enjoyed doing this. I just love your podcast. It's really fun. Now, we thank you for being here with us to help us fill in some of my gaps of knowledge about the Mell's market. It's very interesting. And I think the interest for copper and then having ETFs or more availability to be able to invest in it is really going to be a theme that grows. So it's interesting to hear more about it from Tickley, your point of view. Great. Love it. Thank you, everyone. All right, that's it for the pot. Thanks, Kurt. Thanks, Natalie. Thanks, RSAM for sponsoring. Thanks, Jeff Berger for producing. We're off next week. And then the rest of June will be Chicago Month, where we're talking to Chicago-based people and firms about all the good fun stuff in Chicago. Peace. You've been listening to the derivative. Links from this episode will be in the episode description of this channel. Follow us on Twitter @rcmalts and visit our website to read our blog or subscribe to our newsletter at rcmalts.com. 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