Bitcoin – a threat for future electricity consumption?

Veronika Tomilina

Bitcoin is currency that can be traded and held electronically. It has some advantage; you can transfer from person to person without involving financial intermediaries which usually charge commissions, you also can use it in every country and you do not need to think about exchange rates. Also, your account cannot be frozen and there are no arbitrary limits.

On 27th November, Bitcoin reached its new high of $10,000, up tenfold in just a year. When everything seems so perfect there should be some danger in this currency. This currency might raise many problems for banks and the financial system as it cannot be regulated; however, in this report I want to look at Bitcoin from another angle – how it affects the consumption of electricity.

Firstly, where does Bitcoin come from? The answer is quite easy, Bitcoin is made by mining. ‘Miners’ use a special platform to mine Bitcoins with mathematical algorithms. Anyone can do mining, and as miners need to secure transactions it means it is a fair, stable and safe network. In the beginning, miners were using computers and processors for these processes, but then they realised that graphic cards used for gaming were much better for this type of work. Graphic cards are faster, but they consume much more electricity and create much more heat than computers.

The popularity of Bitcoin increased so fast that more miners try to join network and use different types of graphic cards to mine. As more people are mining Bitcoin, and demand for it grows, there is a huge amount of electricity used not only for producing Bitcoin but for other cryptocurrencies as well.

According to Digiconomist, the estimated electricity power used for generation and transactions of cryptocurrency is now 30.14 TWh a year; this is 0.13% of total global electricity consumption, and this share is growing rapidly. Each individual Bitcoin transaction uses 300KWh electricity – which is enough to boil 36,000 kettles of full water.

Only in the past month Bitcoin’s electricity consumption increased by 30%. If it continued on this trend, then it will consume all of the world’s electricity by February 2020.

Even though Bitcoin is mined in places with cheap annual electricity costs, with an average cost of around $1.5 billion for electricity. The US average retail price per kilowatt-hour is 10.41 cents, which means using 28.05 TWh would cost $3.02 billion (£2.28 billion).

We need to think about what this means for our future. Consuming more electricity means even more damage from climate change; therefore, there should be new technologies developed for this kind of process, which will affect technological companies.

Bitcoin will affect markets in the future as its price grows. This idea seems very new and many people do not trust it, but this is a process of changing to something new. It could also arguably be described as a new bubble that is doomed to crash as the ‘Dotcom bubble’ did.

Can cryptocurrencies rival gold as a hedge?

Alexander Le Grys

With growing geopolitical tensions, rising economic risks associated with higher inflationary expectations after a lost decade in the developed economies and many unstable currencies in the developing world, people have increasingly been searching for hedge investments to act as security. This has coincided with the exponential increase in the value and acceptance of cryptocurrencies, particularly bitcoin. As a result, the headlines are probing the idea that cryptocurrencies will replace gold as a financial hedge. Whether we accept cryptocurrencies as a financial product or as a financial hedge, there are serious issues to be addressed. Three notes of caution should be made when considering them as a serious option for a financial hedge which could challenge gold.

The first cautionary note is that cryptocurrencies are more similar to a fiat currency than most believe. Fiat money is any currency a government has declared to be legal tender, but is not backed by a physical commodity (and thus usually holds no intrinsic value). Although cryptocurrencies are not legal tender yet, they are also not backed by any sort of physical commodity. In addition, cryptocurrencies’ supply is artificially constrained. This opens the door to hacking and predatory coin offerings. In contrast, the global supply of gold has a physical constraint and, thus, its value provides more stability.

Secondly, gold is probably the most liquid commodity asset in existence. You can convert it to cash at its spot price on demand, and its value is not bound by national borders. This contrasts with cryptocurrencies, which have yet to achieve mainstream acceptance. Having only taken off in 2016, there is little data for the cryptocurrency market and insufficient evidence backing them to be a sound financial hedge in times of economic turmoil. A further key point is the size of the gold market. The World Gold Council values the cumulative quantity of mined gold at $7.8 trillion. In comparison, the cryptocurrency market stands at only $170 billion, with this value split over 1,170 different cryptocurrencies.

The third and final argument, and a topic of huge debate, is that speculation is driving cryptocurrencies to a value that is completely subjective. In late September, Ray Dalio, founder and manager of Bridgewater Associates, one of the world’s largest hedge funds, called “Bitcoin a highly speculative market,” and that it was “a temporary bubble”. Although gold has been known for volatility in the past, this has usually been in response to hedging, such as in times of recession, whereas cryptocurrencies’ volatility is purely speculative and thus can outweigh the price movements from hedging.

Investing in cryptocurrencies such as bitcoin is currently considered as a leap of faith.  Whilst governments are looking to initiate their own cryptocurrencies and companies are looking at potential technological opportunities to revolutionise consumerism, it is equally possible that digital currencies could not develop any real-world value and crash. Much remains unknown about the future of cryptocurrencies, but what can be affirmed at this time is the fallacy that they can replace gold as a financial hedge.

Competition for control of the oil market

Rajinder Dhesi

OPEC’s policy of lowering output to use up excess oil inventories has resulted in a small revival of crude future prices. Brent crude is trading at approximately $64 a barrel, up from $45 a barrel in the summer. Talks were held this week between OPEC and Russia to continue production cuts of 1.8m barrels per day for a further nine months in an aim to raise oil prices further. Before the talks, Wall Street analysts suggested the tense relationship between the oil cartel, who account for 40% of world production, and Russia, the world’s single largest oil producing state, could result in a stalemate. Concurrently, there has been enormous recent growth of the US shale sector, which by 2025 is predicted to match the record Saudi Arabian growth at the height of their oil expansion. The outcome of this is uncertainty in the direction of oil prices in both the short and long term, with analysts seemingly unable to agree on estimates in this volatile market.

OPEC member states, with a few small exceptions, have been lowering output for the last 18 months. Net production is down 669,000 bpd. Spearheading this move is Saudi Arabia, who have cut production by 541,000 bpd alone. Without Russian support these measures would only be punitive, offering no real effect. OPEC requires a commitment from Russia to back an extension of cuts throughout 2018. From a Russian perspective, an end to cuts would be welcomed, given the close link between the Kremlin, Gazprom (who are majority owned by the Russian government) and large private firms such as Lukoil who recorded a profit 78% higher in the last quarter compared to the previous year. These firms it seems would like to continue an expansion of production, reaffirming their dominance in the sector. Complicating the situation further, is the Ruble’s floating exchange rate that fluctuates with oil price. Currently, the low value of the Ruble is benefitting Russian exports in the minerals and agriculture industries. As a result, OPEC and Russia will have to agree on compromises at the upcoming negotiations which are likely to result in the market remaining bearish.

Another possible outcome of negotiations which succeed in raising oil value is a negative rebound as US shale firms are incentivised to continue their dramatic rise in extraction. The USA is currently producing 9.48 million bpd of crude oil, the fourth highest monthly average since the early 1970s. If the rebound was to occur, analysts suggest that Brent Crude prices could fall as low as $45 in 2018. This reflects shale oil’s increased influence over prices in years to come. However, in-house reports by OPEC, which may have to be considered with a degree of scepticism, estimate that peak shale oil will occur as early as 2025, because producers are already focusing on drilling their best fields, where oil and gas can be extracted at the lowest cost. After this, shale will become harder to extract and consequently less profitable. After 2025, OPEC according to their own predictions, are likely to increase in market share again until at least 2040.

To conclude, there are a number of competing factors and parties involved in determining the price of crude oil. It appears that control of the oil market and the accompanied benefit of being able to dictate oil prices is what each actor would like, though recent trends suggest that is unlikely to happen. Furthermore, the nature of developments in crude oil technology and production is unknown; very few would have predicted the shale oil boom ten years ago.

Is Gold losing its shine?

Alexander Le Grys

The price of gold rose 0.2% to settle at $1,280.25 per troy ounce (oz t)  this week in New York, and with little fluctuation occurring in 2017, some suggest this precious metal has stagnated. The price has remained within the $1250-1350 range since April 2016, except in December 2016 following a surge in the dollar in response to Trump’s shock presidential election.  The consistency of value has created a divide over gold between those who are bearish and those who are bullish.

Firstly, bearish proponents in the gold market believe fundamental changes in the foreseeable macroeconomics of the global economy may put the precious metal on a perilous path. As a world recovery gathers pace, the Federal Reserve is shrinking its balance sheet and raising interest rates. The Fed started its latest tightening cycle in December 2015, with four rate hikes so far and another expected next month. Other Central Banks are moving the same way. The European Central Bank (ECB) is about to begin receding bond purchases to €30 billion euros, half the current pace, while the Bank of England raised interest rates for the first time in more than a decade earlier this month, and the People’s Bank of China will probably intensify efforts to  reduce the build-up of debt. This scenario makes it very hard for a non-interest bearing asset like gold to do well.

Linked to the reasons above, the demand for gold has slumped to an eight-year low, resulting in reduced buying by institutional investors. Data released by the World Gold Council on Thursday 9th November showed demand for bullion fell to 915 tonnes in the third quarter, down 9% year-on-year. The latest figures were hit by “significantly” lower inflows into gold exchange traded funds (due to a stronger US dollar), which fell to 19 tonnes from 144.3 tonnes, and a softer jewellery market in India. After three consecutive quarters of growth, demand in India following a new tax regime (the world’s biggest consumer of gold after China) dropped 25% year-on-year in the quarter to 114.9 tonnes.

The bulls in the gold market, albeit in a minority, have also turned heads. Firstly, investors in gold believe that in addition to interest rate hikes, nominal inflation will pick up, putting faith in a rising oil price due to OPEC’s expected supply cuts. Historically, the price of gold has risen during times of inflation as investors look for an inflation hedge to provide protection against the decreased value of their respective currencies.

Furthermore, the bulls in gold have strongly argued that it is fallacious to think that cryptocurrencies could replace gold as a financial hedge. They argue hype and speculation are the drivers to cryptocurrencies’ value. Since the beginning of the year, the value of Bitcoin has more than quadrupled. Among others, Ray Dalio founder of Bridgewater Associates, one of the world’s largest hedge funds, and Jamie Dimon CEO of JP Morgan, have called Bitcoin and its counterparts a ‘bubble’. At the end of September this year, Dalio’s Bridgewater Associates boosted its holdings in SPDR Gold Shares almost seven-fold believing the value of the metal will soar once the cryptocurrency bubble crashes.

Whilst cryptocurrencies are unlikely to replace gold as a financial hedge, caution is advisable. Many are comparing the current state of blockchain cryptocurrencies to the early days of the internet – a digital wild west teeming with opportunity. On balance it seems likely that the price of gold will remain flat over the coming months.  Minor movements around the £1300  t oz. seem most likely, with any bullish movements by investors expected to be more painful than rewarding.

Russia’s increasing dominance in wheat exports

Rajinder Dhesi

Russian wheat exports have risen 40% over a three-year period, making the nation the largest wheat exporter after the USA. Analysis of the commodity presents an indication of longer term geopolitical and economic variables influencing the Kremlin’s agricultural policy makers.

Export growth can be reasoned by two underlying factors. First of all, Russian agriculture has experienced rapid modernisation since the fall of the Soviet Union. Inefficient collectives in the USSR have made way for the market-orientated privatisation of agricultural land – allowing more opportunity for farmers to import high grade fertilizers and pesticides/herbicides leading to larger, higher quality yields. As such, Russia’s share of global wheat exports rose from less than 1% in 2000 to an estimated 18% this year.

Over the last year in particular, trends have been highly pronounced, with Russian wheat exports up 20%. According to analysts at German agricultural investors Gentreide AG, importing nations have favoured Russian wheat for its higher quality at a lower price, compared to lower quality produce from the more established Australian and North American markets. Coupled with this is the global oil price crash, which has inevitably resulted in a lowering of the Rouble’s value, given that Russia is the world’s second largest oil producer (accounting for 11% of global production). Simultaneously, EU exports dropped by 25%. Analysts suggest EU farmers are storing wheat due to high cultivation costs, a strong Euro (which disincentives importing from the EU) and hopes that the price paid for wheat will be greater next year. Currently, wheat is being traded at US $441.50 per Bushel (1 Bushel = 35.24 litres), down from a price spike in November 2013 of US $816.50 per Bushel. Prices were inflated at this time partly due to Russia’s decision to ban exports two years before, owing to drought.

The second underlying factor is a shift in the Kremlin’s trading partners. Imports of many Russian goods were banned by the US and EU as part of sanctions in response to Russia’s annexation of the Crimean Peninsula in early 2014. Hence, Russia have chosen to engage more with Emerging Markets. Egypt, by importing 6.4 million tonnes annually, is now Russia’s largest wheat importer. Larger wheat trade has also taken place with Cameroon, the Ivory Coast and Senegal for instance. Trade through Russia’s southern ports makes shipping relatively quick and low cost. Additionally, President Putin has announced plans to increase supply of organic food to the Asia-Pacific region, a market which is likely to become more health-conscious as the size of its middle classes grow. This will to some extent require wheat, as a staple crop of many diets.

However, there exists uncertainty relating to the potential production output of Russia due primarily to severe winter weather in the Black Sea region. More generally, investors question the effect of climate change on crop yields. Combining this with a lack of information on the amounts of wheat stored by each of the large producer regions for future supply, makes the wheat market very volatile.

It is time to buy cocoa for Christmas

Veronika Tomilina

At the beginning of November Cocoa futures rose steadily. What forced them to rise? Is it economic supply-demand factors? In this report, I am going to discuss this agricultural commodity and how it behaved at the beginning of the month.

The biggest supply of cocoa comes from the Ivory Coast in West Africa. Recently, the Ivory Coast faced weather problems which affected supply of cocoa. All agricultural futures depend on the weather, because if there are strong winds, rain or it is too dry for the commodity, it will affect supply and the market will move.

At the beginning of the November there was above-average rainfall in Ivory Coast, which led to flooded roads and plantations, and many concerns about rotting of crops. Such major weather problems might cause supply to go down, which will move prices up. Ghana, another big cocoa supplier, also faced similar problems and pushed the market into a deficit. Cocoa output is predicted to fall by more than 10%, and therefore the price is rising.

Christmas season is close, and people are starting to buy Christmas presents. The purchase of chocolate rises considerably in the December period.

As the price for cocoa is rising, this might limit the profit of companies such as Cadburys and Mars, which will affect their share price. Many companies might face problems with the supply of chocolate if the problems in the Ivory Coast continue, as this is one of the main seasons in the year. Therefore, higher demand can push cocoa futures even higher.

Cocoa is interesting and a not so common commodity for investors to follow; however, it can be affected by any weather condition happening in the West Africa. Moreover, with climate change this area might face even bigger problems in the future, for example, if there is no rain at all during the summer. We should take this in to consideration when evaluating companies with earnings that are heavily dependent on the price of cocoa.

Oil – bullish, but for how long?

Alexander Le Grys

Brent Crude Oil has successfully consolidated its position above $60 per barrel this week, and West Texas Intermediate (WTI) crude is approaching $55 per barrel, which would be the highest oil price in more than two years. The gains come after the Organisation for the Petroleum Exporting Countries (OPEC) indicated that it will extend production cuts in a few weeks at their meeting in Vienna. OPEC’s Secretary General Mohammad Barkindo suggested OPEC members, in addition with Russian President Vladimir Putin, were in favour of a nine-month extension for the current deal to cut production by 1.8 million barrels a day (b/d).

OPEC expects stronger demand in the coming months. The cartel’s monthly oil report said in-house analysts now expect demand for OPEC’s oil to reach 33.1m barrels a day in 2018, up roughly 200,000 b/d from last month’s forecast. Reports from the International Energy Administration (IEA) also confirmed growth in demand for crude both domestically in the US as well as overseas, with China trying to reduce its dependency on coal.

As further indication of this demand, crude futures have flipped into backwardation over the next six months. The primary cause of backwardation in the commodities’ futures market is a shortage of the commodity in the spot market. Since futures prices are below spot prices, investors who are net long in the commodity benefit from the increase in futures prices over time, as the futures price and spot price converge. The flip into backwardation helps to tighten the market in several ways. Traders have less incentive to hold crude in storage because they stand to make more by selling it immediately. It also prevents U.S. shale drillers from locking in higher future prices with buyers, which tends to rein in their production.

However, there are many in the market who believe the time for crude to head in the $85 direction has not come, and will not do so in the short- to medium-term. Part of this is the belief that OPEC have overestimated the increased demand for oil in the coming year. Chinese authorities are looking to tighten monetary policy and growth is predicted to tail off to 6.4% in 2018. Also, supporter or cynic, there is much belief Trump will heavily influence commodities over the coming years. The new administration has promised to reduce regulations on the oil industry and has already moved to approve two big pipelines that should help better connect sections of the US shale boom to markets.

Taking shale further, it appears OPEC has a tendency to underestimate US producers and its influence on global supply. The $60 handle has long been seen as the marginal profit level for even the high cost American shale producers, which suggests that we could see some significant increases in rig counts and production as prices exceed this level. The US exported 2.13 million b/d of oil in the week through October 27th, the first time the nation has crossed the 2 million-barrels-per-day mark. The week’s total output was not far off the all-time high of 9.61 million b/d. The industry has also increased productivity. Drilling is faster, more selective and more accurate, and leakage rates are lower. Wells are being designed to penetrate multiple layers of oil that are stacked on top of each other. Most exploration and production (E&P) firms reckon that they can expand production at an annual rate of 10-20% over the next few years. Assuming that both energy prices and capital spending stay flat, that would require them roughly to double production from current levels. The trouble is that this is a circular argument. If achieved across the whole shale industry it would mean that output would be twice as high as it is now, leading to a 5% increase in global supply, which might in turn lower the oil price.

Oil reached record heights of $145/b in 2008 and was consistently positioned above $90 until April 2014. However, a slowdown in the current emerging markets, a reduction in the amount of economies joining the emerging markets in the foreseeable future, and increases in non-OPEC countries production makes it seem almost inconceivable for oil to rise above $85/b in the near future. Ultimately, there is plenty more pain to come for producers within the oil sector and the recent topping of prices simply puts us back to square one with the ongoing need to rebalance supply. The most likely scenario that we see for the near term is for Brent to range between $55 and $58 a barrel as we move towards the winter season.

Electric vehicles: the impact on cobalt and nickel prices

Rajinder Dhesi

Nickel prices have increased by 18% since last year, reaching $11,850 per tonne on the London Metal Exchange (LME). More remarkably, the price of cobalt has risen to $60,125 per tonne, more than double the price paid last October. The price surges have been a result of growing demand for metals used in electric vehicle (EV) production by automobile manufacturers, which has been reinforced by shifting environmental policy in several major national markets.

During this summer, Britain and France both declared the sale of all new fossil fuel powered cars will be phased out and eventually outlawed by 2040. Adding to this, China announced that they too were considering banning fossil fuel powered cars by a similar date – to reduce air pollution, lower oil imports (a huge strategic vulnerability for China), and possibly even develop itself into a major global manufacturer of EVs. This has led to bullish estimates of China accounting for 60% of global sales of all new EVs (Goldman Sachs), a need for a 50% increase in nickel production or 1.2 million tonnes (Glencore), and even a 47 times greater demand compared to last year for Cobalt (Bloomberg New Energy Finance); all by 2030.

On a shorter timescale, demand has increased on announcements by car manufacturers. The Volkswagen (VW) Group announced in September that they would invest $60 billion in battery cells to electrify all 300 of its models, in a bid to make three million EVs a year by 2025. Therefore, VW have started to agree long-term proposals with major Cobalt producers. In addition, the Chinese government have introduced a system of quotas as a means of rewarding carmakers for EV production, starting in 2019.

There are large uncertainties in EV production demand, however. Firstly, there are suggestions that future batteries are likely to contain more nickel and less cobalt, which would certainly act to weaken the current cobalt demand rise. The message has been somewhat reinforced by VW who stated in proposals being discussed (outlined above) that batteries would initially require nickel, cobalt and manganese in the ratio 6:2:2, but this could eventually change to 8:1:1.

Secondly, prices of nickel could remain low due to fear of oversupply, similar to the events of 2007, when prices fell from a record of $51,600 per tonne as the market was inundated with low grade ore from the Philippines and Indonesia. A similar scenario could play out, as current nickel stockpiles have grown to four times their level at the start of 2012, and the Philippine government is currently reviewing decisions to shut down 23 mines on environmental grounds. This could have a major global effect given that the Philippines is the world’s largest Nickel producer, producing around twice as much as Russia, the second largest producer.

Thirdly, there are fears regarding the security of cobalt mining as production is dominated by one nation – the Democratic Republic of Congo (DRC). Current political instability, a brutal civil war which has claimed 5.4 million lives since 1998, and the forced employment of children in mining makes cobalt production in the DRC both dangerous and unethical.

Finally, there is the question of the EV speculation being unfounded. What if a future UK government chose to scrap proposals due to the high cost of constructing EV charging infrastructure, or the Chinese government simply decided not to go ahead with their plans?

Despite uncertainty, the prices of nickel and copper have experienced the greatest increase of all metals over the last year. Long-term speculation suggests that the demand for these two commodities will only increase, with supply not being able to meet consumption levels, leading to higher prices.

The 21st century shift: oil to renewables

Veronika Tomilina

As many of you will have heard the price of crude oil broke its record for the last two years, reaching $55 in crude oil futures. What does this mean? Why have oil prices started growing again? How does this growth influence petrol companies? And finally, how are oil prices are connected with renewables? All of these questions will be covered in this article.

To begin with, October is a big month for markets, not because it is Halloween, but because during October most companies present their 3rd quarter reports, which have a huge effect on the market, affecting shares, indices, currencies and commodities. Due to the recent rise in the oil price, 3rd quarter reports of oil companies, such as Exxon Mobil and Chevron, showed boost in profits of about 50%. Despite oil companies’ strategies since 2014, when the oil price collapsed, to cut costs and change focus onto projects that generate faster paybacks, their profits are still heavily dependent on the oil price. Therefore, as the oil price has risen, companies had huge profits gains, leading to consequent share price rises.

Secondly, oil prices are growing because demand is rising at a good pace due to the buoyant global economy, and at the same time OPEC has announced a continuation of its supply cuts until the end of 2018. Moreover, recent Hurricanes in America, such as Irma and Harvey, damaged many offshore and onshore oil facilities in America, reducing oil supply further. Thinking of a simple demand and supply model, when demand rises whilst supply falls, a subsequent price rise is inevitable.

Will this oil price rise have any impact on renewable energies? Renewable energy is an increasingly important market. This is because, firstly, it has steady long-term investments, thus investors will achieve steady returns with little risk. Secondly, many banks and asset managers are investing in renewable energies as they have started moving towards investing in more sustainable business, to help deal with climate change.

When the oil price was low, renewables became a more profitable investment in terms of sustainable returns, which oil could not do. However, as the oil price is now rising, it may potentially damage the renewable sector, as investors may return to oil investment now. However, it is clear that renewables are still a good investment which will grow in the future as companies invest a lot of money in new technologies, such as electric cars, power storage and solar panel efficiency. And all of these products are likely to become very efficient and profitable in the future, as many countries are already implementing different laws connected with sustainability and the reduction of carbon emissions.

Copper: a perspective for 2017

Freddie Robinson

The outlook of copper going into 2017 has divided market opinion. In November last year, copper prices witnessed an exceptional spike in reaction to the result of the U.S. presidential election, reaching above $6000 a tonne and driving the metal to its best week in 30 years. Trump’s proposed $500 billion infrastructure plan, although still only in a vague format, is expected to help drive demand for the metal above supply. Copper is a very ‘tight’ market, so any significant changes in demand or supply can move the metal from a surplus to a deficit. But now that the immediate response to Trump’s election is over, the metal’s price has fluctuated between $5600 and $5800 as investors consider the wider market beyond US demand.

On the demand side, Chinese imports dominate. Although US infrastructure plans can have a significant impact, the United States only consumes roughly 13% of the world’s copper. China though consumes nearly 50% of world’s copper, and the economic policy of the central government in China often dictates demand. Investors expect improved prospects for Chinese economic growth, as the central government attempts to stimulate the economy with credit. The growth of the Chinese property market and the Chinese automobile market are expected to increase copper imports. This is not to say that demand for copper within China will increase though, as some have pointed towards tightening regulations on the Chinese property market that could cause a curb back. Copper trading remains speculative at the moment, although investors are leaning towards an improving situation for the metal.

On the supply side, the situation can become very turbulent quickly. Owing to the tight nature of the market, problems at a single mine have the potential to cause a price spike. Two notable cases have been Grasberg in Indonesia and Escondida in Chile. Grasberg’s export shipments were suspended after changes in Indonesia’s regulatory rules, which caused a small spike. More threatening though is the potential strike at Escondida, the world’s largest copper mine. If the strikes do go ahead without a quick resolution, it is expected that this will tip the copper market into a deficit.

Copper has been stuck in a two-year period of low prices and surplus production. 2017 appears to be the year that this is set to reverse. Investors also realise that the copper market is very slow to respond to increasing demand, as most copper ore is now found in deposits deep underground. Exploration and development costs are now very high, and it often takes years before production can be started. Case in point would be the Resolution mine in Arizona, where drilling started in 2012. It has been stalled on numerous occasions by environmental issues, and production is not expected to start until 2020. This slow reaction to growing demand will only be exacerbated by the limited exploration budgets of major mining companies such as Rio Tinto and BHP Billiton in recent years, who have been cutting costs and mothballing projects in the last few years to stay profitable. A more immediate solution is to restart mothballed mining projects. Most notably Glencore has declared that it will restart 400,000 tonnes of annual production in the Democratic Republic of Congo and Zambia. But this can only go some way to meeting growing demand.

Overall, it looks very likely that copper will enter into a deficit in production for 2017, and rising prices will have a huge impact for mining companies involved in copper production. Major companies such as BHP Billiton have increasingly invested in copper mining, as they see continued growth in demand. It will provide much needed relief to these companies, who have been suffering from a commodity price slump over the last few years and faced significant losses.