It is forecast that global copper demand will continue to rise by 4% per annum over the coming decade. This implies that the industry will have to deliver an additional 1.4 billion pounds of copper every year. This is equivalent to four big new mines every year for the next 10 years. Plus, another four new mines will be required every year over the coming decade just to replace depleted mines. I don’t know about you, but at least in my eyes, this seems like a gigantic, if not impossible, task.

On the supply side, Chile is the biggest producer of copper and its power situation does not look promising. It is likely that similar to South Africa, Chile will see power shortages this year. Roughly 40% of Chilean power is hydro and 60% is thermal (mainly from natural gas supplied by Argentina). Chilean power demand is rising by roughly 5% per annum and with a reduction in hydro-electricity this year due to less rain, thermal power generation would have to rise by roughly 20% to meet demand. This seems unlikely and a power crisis in Chile seems to be on the cards. Should it occur, Chilean copper output will be affected as the operating mines receive less than adequate power supplies. Since Chile is the key player in copper, this is a very bullish development especially with the metal trading close to its all-time high. If you have not done so already, now is a good time to invest in diversified miners with exposure to copper.

Over in the precious metals department, both gold and silver continue to correct within their ongoing primary bull-markets. Having booked our profits a few weeks ago, currently we have no exposure to this sector in our managed accounts. Should prices correct in the summer, we will re-invest in precious metals mining companies.