Copper’s strong fundamentals are pointing toward a bull market. But when will the price of copper rise further?
Copper is the third most-used metal in the world, and experts believe demand for this important commodity will rise in the coming years on the back of a tight supply situation.
For that reason, market watchers may be asking, “When will copper go up?” The general consensus is that higher copper prices are needed for mining companies to invest in copper production and exploration.
“We believe significant mine supply response will be required to meet this new area of demand growth and a higher copper price will be needed to incentivize the new production into the market,” said Daniel Greenspan, senior analyst and resource team director at CIBC Asset Management.
Copper’s supply/demand imbalance sparked a record-breaking rally in 2021, pushing prices to an all-time high of US$10,724.50 per metric ton (MT) — a record that the metal broke in March 2022, when it hit US$10,730 per MT.
The price of copper has since pulled back to about US$8,000 per MT as of mid-August on growing fears of a global recession. Is there still room for optimism for an impending bull-market for the red metal?
Green energy in driver’s seat for copper demand
Copper’s many useful properties have translated into intense demand for the base metal from a diverse range of industries. Construction and electronics have long been the main drivers for copper demand, and with a conductivity rating that's second only to silver, it’s no wonder copper is also an ideal metal for use in energy storage, electric vehicles (EVs) and EV charging infrastructure.
According to S&P Global Market Intelligence, “With its significant use in solar photovoltaic panels, wind power generation and electric vehicle production, copper will be the key beneficiary of the energy transition.”
For 2022, the firm sees global copper demand from solar and wind energy generation reaching 852,000 MT, with the EV market accounting for 1.1 million MT worth of demand.
China is the world's largest consumer of the metal, and while its zero-COVID policy is wreaking havoc on its economy, most notably in the housing sector, it is driving much demand for copper as an energy metal.
The Chinese government’s Made in China 2025 and China Standards 2035 initiatives include spending US$1.4 trillion on copper-heavy infrastructure programs, including 5G networks, industrial internet, inter-city transportation and rail systems, ultra-high-voltage power transmission and EV charging stations.
Outside China, the EV market represents a growing global source of demand for copper now and into the future. As research firm Wood Mackenzie has noted, “EVs can use up to three and a half times as much copper when compared to an internal combustion engine passenger car.”
Even so, according to IDTechEx, energy storage may prove to be one of the most copper-intensive markets in the 21st century. Estimates show that lithium-ion batteries need 1.1 to 1.2 kilograms of copper for every kilowatt hour. IDTechEx forecasts that by 2027, nearly 600,000 MT of additional copper will be needed to match this demand.
Watch the full interview with Kovacevic above.
“Copper is going through a once-in-a-100-year pivot with this global transition to electrification,” Gianni Kovacevic told the Investing News Network (INN) in a mid-2021 interview about the base metal's future. “We need more copper in the next 20 years than was installed in the last 130 (years).”
Companies struggling to keep copper supply coming
Of course, demand is just one side of the story for copper prices. For more than a decade, the world’s largest copper mines have struggled with steadily declining copper grades and a lack of new copper discoveries.
In a June 2020 report, S&P Global Market Intelligence analyst Kevin Murphy paints a “dismal” picture for copper mine supply. He states that out of the 224 copper deposits discovered between 1990 and 2019, a mere 16 were discovered in the last decade. These circumstances have led to questions about whether peak copper is here.
The COVID-19 pandemic has further exacerbated challenges in the global copper supply chain as both mining and refining activities in several top copper-producing countries were slowed or halted altogether. The economic uncertainty also led miners to delay further investments in copper exploration and development — a complicating factor given that it can take more than 15 years to develop a newly discovered deposit into a producing mine.
Supply instability out of the world’s largest copper-producing countries, Chile and Peru, has also been weighing heavily on the market in 2021 and into 2022. Together, they represent a combined 40 percent of global output.
In Chile, some of the world’s biggest copper miners, including BHP (ASX:BHP,NYSE:BHP,LSE:BHP) and Anglo American (LSE:AAL,OTCQX:AAUKF), are facing proposed increases in the royalty rate via a tax reform bill. The country is also dealing with water woes as drought intensifies, causing tension over water access for miners who rely on this resource to pump copper to the surface, as well as during the smelting and concentration process.
To the north in Peru, President Pedro Castillo has copper miners nervous about the potential for higher mining taxes and royalties, not to mention ongoing sociopolitical unrest in the form of mining protests. "Without any world-class projects on the horizon, the prospects for sustaining production are not good," said Gonzalo Tamayo, an analyst at Macroconsult and a former Peruvian mines and energy minister.
Although his firm is forecasting that copper mine supply will increase by 4.3 percent in 2022, analyst Robert Edwards told INN in March that CRU Group has revised its 2022 copper supply/demand balance from a 50,000 MT surplus to a 100,000 MT deficit. Looking further out, CRU expects the copper market to realize a structural deficit by the early 2030s unless there is additional mine investment.
“If there isn’t enough physical supply, then the price will need to rise to incentivize more mines to come online, and/or there will need to be demand destruction, with a switch to alternative materials or products simply not being manufactured, in the worst-case scenario,” Edwards said.
Bull market for copper or bust?
Together, strong demand and tight supply can create the right market environment for higher prices.
Copper’s strong rally in 2021 has encouraged the idea that even higher copper prices are ahead, which could be a golden opportunity for junior copper companies. Speaking to INN, Joe Mazumdar, editor of Exploration Insights, explained why this segment of the metals market has piqued his interest.
Watch the full interview with Joe Mazumdar above.
"Some of it's battery metal exposure, it's construction," he said. "But also on the supply side, the lack of development projects and the higher permitting risk combined with more geopolitical risk in two of the major producers, Chile and Peru. They might have issues with production into a market (where) demand might grow."
So when will copper go up?
One of copper’s biggest backers, Goldman Sachs (NYSE:GS), has touted copper as a key metal in powering the green energy revolution. While the bank has culled its short-term price forecast from US$12,000 per MT back down to US$9,000 per MT, its analysts are still predicting that the metal will reach US$15,000 per MT in 2025 — a sign the firm believes in a “clear structural bull story” for the global copper market.
The Bank of America is a bit more conservative in its estimate as it sees the copper market entering a surplus in 2023 and 2024 before “flip(ping) back into deficit by 2025.” The bank has set its copper price forecast at US$3.97 per pound (US$8,750 per MT) for 2022 and US$3.29 per pound (US$7,250 per MT) for 2023.
Australia’s Office of the Chief Economist (OCE) has confidence in copper prices regaining lost ground in the next few years. It estimates that in 2022, total consumption will reach 27 million MT, while global mine production is estimated to reach around 22 million MT. “Copper demand growth is expected to be supported by global trends towards decarbonisation and renewable energy,” cites the Australian government's commodity forecaster.
The OCE sees copper prices averaging US$9,100 per MT in 2023 and US$9,000 per MT in 2024.
For its part, JPMorgan Chase (NYSE:JPM) is forecasting that copper prices will rise to US$10,000 per MT in the second half of 2022, alongside a prediction that China copper demand will rise by 5 percent year-on-year.
In a note, the investment bank states that it sees China's accelerating fixed asset investments in infrastructure and property benefiting copper and iron ore, another base metal.
This is an updated version of an article first published by the Investing News Network in 2021.
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Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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