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Will copper usher in a "super cycle"? The supply gap in the next ten years is expected to reach 10 million tons

2022/07/18

Institutions predict that within a decade, the world may face a massive shortage of copper, a metal vital to the global economy.

The copper industry will need to invest more than $100 billion to fill a 4.7 million-tonne-a-year supply gap by 2030, according to estimates by commodities market researcher CRU Group.

Commodities trader Trafigura Group estimates that without new mines, the potential copper shortfall could reach 10 million tonnes. Closing the gap will require building the equivalent of eight new copper mines at Escondida, the world's largest copper mine in Chile and part of BHP Billiton.

Copper is used for everything from wires and pipes to batteries and motors, and it is both an economic bellwether and a key ingredient in driving the development of renewable energy and electric vehicles. If producers fail to address supply issues, copper prices will continue to rise, posing a challenge to a Biden administration and other world leaders who are counting on the global energy transition to tackle climate change.

On the other hand, rising copper prices could lead to more recycling of scrap copper and the use of cheaper alternatives such as aluminium, which could ease the shortage. Since February this year, the price of LME copper has been soaring and broke through the $9,500 mark, and is currently consolidating around $9,000.

Goldman Sachs also previously raised its 12-month price target for copper to $10,500, noting that "copper supply is currently at its tightest," with the bank forecasting the biggest supply shortage in a decade.

“We are about to have the biggest shortage of copper in 10 years. Inventories were off a very low start at the beginning of the year, but anti-seasonal inventories have deteriorated further in the first quarter so far, on a scale that has only been seen in recent history (2004). ),” Nicholas Snowden, an analyst at the bank, wrote in a note, “These trends point to a high risk of copper shortages in the coming months. Against this backdrop, the fundamental outlook for copper remains very positive, There is no evidence of a weakening trend at current price levels."

To be sure, new copper projects are in the pipeline. But copper producers are also concerned about a repeat of the same mistakes that could lead to potential losses from the ups and downs in copper prices. Another analyst pointed out that "increasing technical complexity and delays in approvals may lead to a lack of projects that can start in 2025-2030."

Summary of various copper densities

"Carbon neutrality" will increase copper consumption by 850,000 tons per year