ZHEJIANG, CHINA - JULY 23: (CHINA MAINLAND OUT)The smelter is melting copper on 23th July, 2020 in ... [+] Jinhua,Zhejiang,China(Photo by TPG/Getty Images)
U.S. ammunition makers are competing with Chinese companies for copper, a metal that is essential for building construction and the manufacture of electronics. Aluminium Induction Furnace Factory
Gun sales are continuing to accelerate to record heights during the coronavirus pandemic, as Americans arm themselves for self-protection against an increasingly scary world with civil unrest and rising crime. Guns need ammunition, and making it requires raw materials like gunpowder, brass for the shells and copper for the bullets.
“Copper is very big for us,” said Vista Outdoor Chief Executive Officer Chris Metz in a recent interview.
Copper is part of a soft zinc alloy that jackets the lead bullet to protect the inside of the gun barrel when firing. But copper is also an important ingredient in keeping the lights on around the world, and in running our computers and phones.
The commodity markets have been on fire for this shiny red metal, and it’s causing a copper crunch. The demand has been high for other metals used in technology, including cobalt and lithium. Copper prices have spiked dramatically since the coronavirus pandemic swept through America in March 2020, more than doubling to $10,211.85 per metric ton on May 10 after having slumped as low as $4,684.85 on March 16, 2020, amid the economic disruption of the coronavirus pandemic.
The record demand has outstripped production, fueling an ammunition shortage and resulting in bare aisles in the ammo sections of gun stores across the country. Americans are buying handguns, shotguns and AR-15s. They’re buying firearms from Smith & Wesson, Sturm, Ruger RGR , Glock, Taurus, Sig Sauer, HK, Daniel Defense, Springfield Armory, Savage Arms, Mossberg and many others. The run on guns means that some of the most popular calibers – like .45, 9mm and .223 – are hard to come by.
Ammunition manufacturers like Vista Outdoor and Olin need a steady supply of copper to continue making ammo to try and catch up with the insatiable demand of American consumers. Vista said it plans to launch a monthly subscription service for ammunition, possibly by late June, to keep consumers in stock.
But ammo makers aren’t the only ones who are hungry for copper. Metz said he’s competing with China for raw materials, especially copper. China is undergoing an infrastructure construction boom, and contractors need the conductive red metal for electrical wiring in new buildings. Overseas manufacturers of microprocessors also need copper for chips.
Metz said that he also faces stiff competition for copper from makers of electric cars. Elon Musk, co-founder and CEO of Tesla TSLA , needs copper to continue manufacturing, especially since sales for Tesla cars are booming in China. Sales have also been strong for the Chinese makers of electric vehicles, including Nio and Xpeng.
Metz said that it’s hard to get copper and other raw materials, including steel, cardboard, and the resin used in packaging, because of the supply chain shortages, including a shortage of shipping containers, and recent disruptions from the temporary logjam in the Suez Canal.
Metz said that Vista sources its copper from fabricators who buy it from the mines and smelt it into strips and ingots.
“Because of our longstanding relations with these suppliers we’re at the front of the line in getting all we can get in the situation,” he said.
A labourer works at a copper processing factory in Yingtan, Jiangxi province March 1, 2010. VCP ... [+] (Photo by Jie Zhao/Corbis via Getty Images)
The fabricators source much of their copper from mines in Chile and Peru. Chile is the world’s No. 1 source of copper, mining 27% of the world’s supply, according to a recent report by Jefferies, while Peru ranks second with 11%, and copper accounts for 4% of its GDP.
The top two mines in the world, Escondida and Collahuasi, are located in Chile and owned by companies including BHP, Rio Tinto, Mitsubishi, JX Nippon, Anglo American, Glencore and Sumitomo Metal Mining, according to Mining.com. Four of the top 10 copper mines are Chilean and two are Peruvian. The third-largest copper mine is in the U.S., near Morenci, Arizona, and is owned by Freeport-McMoRan FCX and Sumitomo.
The South American mines have experienced some disruptions and shipping struggles. A reluctance to expand mining capacity even in the face of incredible demand is also causing problems.
“The threat of higher taxes and royalties is becoming a deterrent to investing in new mine capacity in Chile and Peru,” said Jefferies analysts Christopher LaFemina and Stephen Volkmann in a recent note to investors. “The implication is slower-than-expected supply growth leading to a longer-term period of higher copper prices.”
If copper prices continue to rise, it could inflame international tensions, according to the report.
China Coreless Induction Melting Furnace Manufacturers “Risks are rising in other important mining countries as well, in our view, as resource nationalism is likely to become a hot topic if commodity prices stay high or rise further,” said the analysts.