Volatile metal market puts spotlight on Latin American Mining

It’s been an exciting year for metals investors. In May, copper hit record highs, while nickel, zinc, and tin prices have all seen double-figure gains this year. Meanwhile an unsolicited bid by BHP for Anglo American, briefly threatened to create the world’s largest copper producer. So, what’s happening in the metals market?

One thing all these base metals have in common is that we need them for the energy transition. Another shared trait is that they’ve all suffered from serious supply disruption recently. Unlike lithium – which is also key for the energy transition – but has seen its price plummet as supply has ramped up.

Latin America is the key global store of most of the energy transition metals. As competing countries and investors compete to secure supplies of critical minerals, Latin America’s mining sector will see an influx of capital.

Investor inflows

One of the less-understood reasons for the uptick in base metals prices is the influx of energy traders and financial funds to the sector. In the last year, energy trading houses, such as Gunvor, Vitol and Mercuria, that made huge profits buying and selling oil, have moved into (or back into) metals. At moment the metals market is far smaller than the value of oil and gas, but as one trader said: “we are diversifying today against what might happen tomorrow. If the energy transition takes off, we want to be there.”

Another entrant to the metals market are the financial funds. These are investment firms that aren’t content with simply getting exposure to metals prices via stocks, bonds or derivatives – they want to enter the physical market too. As one explained, “having access to physical flows of metal gives us forward-looking data about demand that we use to guide our financial positions.” Just to be clear, these funds’ financial bets on metals prices are often much larger than their physical holdings.

Even mining companies are caught up in the excitement. In April, Australia-headquartered miner, BHP, made an unsolicited bid for London-listed Anglo American. Copper was at the heart of the $38.8billion deal. If it had gone through the deal would have created the world’s largest copper miner, responsible for around 10% of global output. It got rejected in May but now Anglo is under pressure to divest some of its non-copper assets.

We are diversifying today against what might happen tomorrow. If the energy transition takes off, we want to be there...

If you ask any traders, financial investors or analysts, they’ll tell you the reason for the upsurge in prices is the energy transition. We all know the story by now. Humanity needs to save itself from climate change by switching from fossil fuels to renewable energy, which means building lots of new power generation, transmission lines and electric vehicles – all of which need all the metals listed above.

Another chapter to the base metals demand story is our growing dependence on technology. We increasingly stick computer chips in everything from bicycles to washing machines and expect our devices to be connected to the internet or each other. This ‘internet of things’ increases the need for energy-hungry data centres. As does the growth of artificial intelligence. And more data centres mean increased electricity generation and storage, which boosts demand for copper, tin, nickel and zinc.

But given the story is years old, why are the investors all piling in now? Part of the reason is that it’s becoming more apparent we won’t actually be able to build the mines needed to produce enough of these metals. And in a tightly-supplied market it doesn’t take much to make prices swing. Those dramatic price movements entice more investors and traders to join the market – because they make money in volatile markets – which further propels prices.

Supply disruptions

In May a host of base metal prices hit highs on the LME. The three-month futures contract for copper hit $11,104.50 per tonne on Monday May 20 – a new all-time high. Nickel hit an eight-month high on May 20, with the three-month contract reaching $21,615 per tonne. Tin also had a good May, hitting $36,050 per tonne, which was up 47% since January 5. Meanwhile the three-month zinc price closed at $3,062.50 on May 22, which was a 24% gain since only a month before and it highest level since April 2022.

All of these metals have different markets, uses and dynamics but they share some traits. They all have growing demand from the energy transition and they’ve all suffered from supply disruptions.

In copper the most dramatic hit to production came when the Panamanian government ordered the closure of Cobre Panama in late 2023. The mine, which is owned by Canada-listed First Quantum Minerals, supplied 1% of annual global copper supply, so its closure had a big impact. But more significant than this type of ‘black swan’ event, are the structural factors that make it more difficult to produce copper. During 2023 and 2024, several large copper miners revised their annual production forecasts downwards.

Growing environmental and community activism has made it more difficult to build new mines. Indeed, the average time to take a copper discovery into a producing mine has gone from seven years to almost 20. As a result, miners focus on extending existing mines. But these ‘brownfield’ projects invariably have lower ore grades or other technical challenges, which explains the output downgrades. The difficulty of producing more copper by the drill bit explains why BHP tried do it via the cheque book.

In the UK tin is associated with food cans or abandoned mines in Cornwall. Yet nowadays more than 50% of tin demand is for soldering electrical components and computer processors. It is a key metal for the energy transition. For example, tin is part of the ‘solar ribbon’ that connects the individual cells in a solar panel, while electric vehicles use three-times more tin than conventional cars. The ‘soldering metal’ is also in the new computer chips needed to enable artificial intelligence.

So, tin is a ‘future-facing’ metal that is essential for both the energy transition and the fast-growing tech sector yet it just takes a quick glance at the world’s main tin-producing countries to see why supply might be precarious.

Peru, the world’s second-largest tin producer, is subject to frequent bouts of civil unrest and political turmoil, which often impact mining operations and infrastructure. Bolivia is the world’s fifth-largest tin producer and, like Peru, has a former president in jail, while the latest incumbent struggles to quell widespread discontent. Indonesia, the world’s third-largest producer, has repeatedly threatened to ban tin exports, which makes future supply difficult to estimate. Then you have Myanmar, which is responsible for around 10% of global tin supply, but where the majority of tin output comes from an autonomous region ruled by an armed separatist group.

At present around 66% of nickel goes into stainless steel. But roughly 15% of annual global nickel production is used for batteries. That percentage is rising rapidly as EV production increases and pushes up demand for batteries.

The supply picture for nickel is unclear. Over the last few years, the market has been disrupted by an influx of MHP - a nickel intermediate product that is a halfway step between nickel ore and the fully refined nickel metal. MHP is mostly produced by Chinese-backed operations in Indonesia. Because it’s cheaper than refined nickel, and can be used to make batteries, it took market share from the traditional metal and caused the nickel price to fall 40% in 2023. That caused a slew of Western nickel mines to close in 2024. Those closures, coupled with unrest in New Caledonia – a French-controlled island in the Pacific that is the world’s third-largest nickel producer – reminded investors that nickel supply is precarious.

Latin American supply

There’s one place the world can get its essential energy transition metals – Latin America. The region is responsible for more than 50% of global copper production and holds more than half of the planet’s lithium reserves.

A search of the excellent data available on the US Geological Survey website, reveals why Latin America is so important for the energy transition. Chile is the world’s top copper producer; Peru is the second while Mexico is in the top ten. But the most exciting countries don’t even appear in the official rankings.

Today Argentina exports almost no copper but it has the potential to be a top global producer by 2030. Five huge copper deposits in Argentina have been discovered by private companies, that are waiting for the economic guarantees from the new government before progressing with the projects. Ecuador is another high-potential country, where scores of impressive discoveries have been made but has only one large-scale copper mine operating at present.

Brazil is the world’s eighth-biggest nickel producer, which doesn’t sound that impressive, but it has the third-largest reserves, so the growth potential is huge.

When it comes to tin, Peru is the fourth-largest producer, while Brazil and Bolivia are the joint sixth-largest. In zinc, Peru, which is clearly a polymetallic country, is the second-biggest global producer, while Mexico is sixth and Bolivia is seventh. Finally in cobalt, Cuba has the world’s fourth-largest reserves.

The ‘Lithium Triangle’ of Bolivia, Argentina and Chile is estimated to hold 56% of global reserves. In terms of output, Chile is the second-largest lithium producer in the world with Argentina third-largest and Brazil fourth. Australia is the world’s number one producer yet it produces lithium from hard-rock. It is a conventional mining process, with all of the costs associated with mining and processing ore.

In the Lithium Triangle, the lithium is found in brine pools located on salt flats. Lithium can be extracted from this brine by a process of evaporation where the sun does most of the hard work. It means Lithium Triangle production can be much cheaper than its Australian competitors and is a process more akin to manufacturing or petrochemicals than mining.

Latin America’s potential to be a low-cost lithium producer is very relevant, given the recent price fall.

Latin America’s abundant supply of low-cost energy transition materials will be in growing demand over the coming decade. We look at some of the best ways for UK investors to get access.