Commodities Weekly #5

Enormous Mudslide Wreaks Havoc on Copper Markets

Copper market turmoil continues. The spotlight is again on copper, as it was two weeks ago when Anglo-Tek formed, and EU highways to support renewables were announced. Prices spiked following a major incident at Indonesia’s Grasberg mine - one of the world’s biggest copper mines - that forced Freeport-McMoRan to declare force majeure (extraordinary unforeseen circumstances that prevent a party from fulfilling contracts) on some supply contracts. What initially seemed to be a local production issue has rapidly escalated into something much larger, shaking the market and prompting analysts to revise their supply projections.

A Catastrophic Natural Disaster

The problems started on September 8 when a mud flow affected operations at Grasberg, and production was curtailed and unfortunately, two workers lost their lives in the accident. Supply from 2024’s number one copper producer is uncertain for now. Freeport-McMoRan, for example, announced it would fail to meet some delivery commitments, sending traders and buyers scrambling. Grasberg (the affected mine) is the source of approximately 3 percent of all global copper production, so this is not just a minor hiccup, but a significant shock to supply. Investment banks wasted no time in revising their numbers. Goldman Sachs projected reductions of 160,000 tonnes in 2025 and 200,000 tonnes in 2026. This is a 13-14% decrease for next year. Grasberg alone could lose production of more than a quarter of a million tonnes this year, and possibly even more next year if repairs and stabilisation take longer than expected. The market, which was expecting a small surplus for 2025, now faces a shortfall of more than 55,000 tonnes.

Copper prices reacted instantly. The London futures surged by nearly 4% this week to breach $10,350 a tonne for the first time in months. Shares of Freeport itself fell sharply as investors factored in the lost output, while the shares of other producers gained as the promise of reduced supply and higher selling prices improved their prospects.

Shockwaves in the Markets

Copper is not simply another metal on the LME. It is often regarded as “Dr Copper” because it is an indicator of the health of the global economy. There’s hardly an area of industry that doesn’t depend on it -construction, electronics, power grids, renewable energy, electric vehicles; you name it and somewhere in there, copper will be involved. When a substantial piece of the supply chain goes dark all at once, the effects cascade through wire makers and carmakers to infrastructure construction. The significance of Grasberg can’t be overstated. The loss of output from such a vast and consistent producer is a headache to smelters and refiners around the world. It also comes as other areas have struggled with weather problems, protests, and weaker ore grades, including Chile and Peru. In other words, there are not many soft substitutes for the missing tonnes.

This is extremely untimely. Copper demand is growing in response to the drive to decarbonise and the adoption of renewable energy. The world needs more copper for electric vehicle production, solar farms, wind turbines, and grid upgrades. Industry experts have been sounding warnings about underinvestment in copper mining for years, and I wrote two weeks ago, arguing that supply would ultimately fail to keep up with demand. This week’s events indicate that those warnings appear to be correct, with the market now flipping from surplus to deficit.

What It Means for the Future

The open question, of course, is how soon Freeport can get Grasberg up and running again. If they can bring most of the production back online in the next quarter, perhaps the market will cool off, and prices could nudge a little lower. However, if repairs drag on — and some analysts are already predicting that 2026 will still be a year of lower output — the copper market may remain tight for quite a while. More expensive copper will obviously be good for producers, who could use some of those additional earnings to accelerate new projects or expand existing ones. That could help alleviate the supply pinch in the longer term. But for manufacturers and those building new infrastructure, higher prices are higher costs. Cable producers, electric vehicle makers, and utilities may have to make tough decisions about whether to absorb those costs or pass them on.. We may also find that copper recycling increases if high prices have already rendered scrap metal more appealing. In some ways, that’s the good news — less need for new mining and lower barriers to recirculating materials. The gap, though, can’t entirely be bridged by recycled material if demand keeps growing — so primary mining will remain important. Arguably, the key takeaway is that this incident might change the way risk is viewed in the market. Investors and governments could place a greater premium on multiple supply sources for copper, as well as invest in projects in politically stable jurisdictions. It may also raise the cost of capital for mines with greater operational or political risks. Conclusion

The events at Grasberg this week arrived abruptly. However, they have demonstrated the vulnerability of global supply chains. Starting as an accident localised at the provincial level, it soon became a story to attract international attention. As a result, markets shifted, and prices of various commodities rose to multi-month highs.

Traders and manufacturers, for now, wait anxiously to see if the market will recover. Freeport-McMoRan will have more information by the end of 2025, but it is likely to return to 100% capacity by 2027. Meanwhile, copper appears to be drawing a lot of attention. With demand rising due to the transition to renewable energies and struggling mine output, I again say that we may be on the verge of a new, more expensive era for copper. This will affect everything from the cost of architecture to profits on your next electric vehicle (EV).

Ukraine's Drone Strikes on Russian Refineries: What it means for Oil

The focus of Ukrainian drone attacks are no longer just front-line positions. Over the past few weeks, strikes have been designated deep inside Russian territory with a focus in mind; targeting the important infrastructure that powers its economy. Multiple refineries, petrochemical plants and pumping stations have all been hit. The results of this have led to large drops in fuel production and has forced their government to take action to protect domestic supply. In addition to being military operational victory from Ukraine’s side, it also has a large effect on the wider oil market. What attack’s took place? One of the more recent attack targets was on the 26th of September; The Afipsky oil refinery in Russia’s Krasnodar region, roughly 200km from the front line. A drone strike caused debris to hit one of their refinery unit’s and start a fire that burned an area of about 30 square meters before being extinguished. This specific refinery served as a diesel fuel logistical hub and a supply for aviation kerosene for the country’s armed forces, accounting for 2.1% of their oil refining output. Afipsky had been struck twice previously in August, showing that Kyiv is willing to keep hitting the same sites until they are neutralized. One of these attacks led to the shutdown of one it’s facility. Since the start of August, Ukrainian attacks have struck 16 out of Russia’s 38 oil refineries in the country. Some of them includes Russia’s largest fuel-processing facilities. Ukrainian drones struck a refinery in the Ryazan region southeast of Moscow. It processes between 13.7 million and 17.1 million tons of crude annually. Further north, the Kirishi refinery with a capacity of over 350,000 barrels per day, was also attacked earlier in September. Russia claims its air defences shot down hundreds of drones, but even debris falling onto the plant caused disruption and fire. These are not symbolic attacks. Together, strikes have knocked out an estimated 1.1 million barrels per day of Russia’s total refining capacity, which is roughly 17 percent of the country’s total. The Financial Times reports that because of these attacks, Russian diesel exports are now at their lowest levels since the year 2020, and domestic refining margins have spiked because operators face higher operational costs and tighter capacity.

How are Russia reacting? Moscow is moving to protect its domestic oil market. The government has announced a partial diesel export ban through the end of the year and extended its gasoline export ban. The aim is to keep enough fuel at home to prevent shortages and ease prices. But that comes at the cost of export revenues, which are crucial for financing the state budget and the war effort. How have the markets been reacting? The global oil markets have been taking notice of these recent attacks. Brent crude futures climbed back above $70 per barrel last week, rising 1.04%. Meanwhile U.S. West Texas Intermediate (WTI) crude finished at $65.72 a barrel, gaining 74 cents, or 1.14%.

This is the biggest weekly gain the oil benchmark has seen in nearly three months. Still, traders are cautious. Macroeconomic data is mixed, and central banks are signalling they will keep interest rates higher for longer. That has kept some oil investors from betting on a sustained price rally. But the strikes have reintroduced real supply risk into the market, a factor that could keep a floor under prices even if demand growth slows. The strategy behind these strikes is clear. Ukraine is turning Russia’s energy system into a battlefield, aiming to squeeze state revenues and raise the cost of waging war. The main aims of these drone campaigns launched by Kyiv are reducing Moscow’s ability to fund the ongoing war. Each damaged refinery means less diesel exported for the country, more money spent on repairs and damage, and more political headaches for Moscow if domestic shortages emerge. There is also an international dimension. Countries that rely on Russian refined products, particularly in Africa and parts of Asia, could see supply tighten.

This creates opportunities for other exporters of oil from the U.S. and the Middle East, to capture market share. For Ukraine, this is a way to fight back without having to match Russia tank for tank. For Russia, it is a warning that even facilities hundreds of kilometres from the front are not safe. For the rest of the world, this means oil markets are once again on edge. Prices have already started to rise, and if damage keeps piling up or Russia cuts exports further, we could see even bigger spikes. The war is no longer just about battles on the ground. It is about who controls energy flows, and right now that fight is taking place over Russia’s refineries.