The future of the energy transition is not painted only with the white of lithium. It is largely reddish, the color of copper. And if the availability and volatility of the former has been worrying the technology industry for some time, even forcing it to put its head in the mining sector, the latter is also viewed with some caution. That’s right. There are already voices that warn of the risk of copper shortages, a worrying panorama given the role it plays in batteries or solar panels.
some analysts they even point to years of deficit.
What does the data say? Given the importance of copper, both for the technology sector and for construction, the evolution of its price, demand and supply is a crucial issue. And on the table there are studies that warn of a future with imbalances. One of the most compelling is that of the consulting firm McKinsey & Co, which calculates that by the beginning of the next decade the supply will have become insufficient. Specifically, it foresees that the annual demand will increase to 36.6 million metric tons by 2031 while the supply will be around 30.1.
the multinational Anglo Americanembarked on a mining project in quallaveco, one of the largest reserves in Peru, points to a similar scenario. During the World Copper Conference (CRU) 2022—details the company— It was estimated that from 2030 the sector will register a supply deficit of 4.7 million tons per year. To balance the market, he calculates that it would be necessary to invest more than 100,000 million dollars in the construction of mines.
A market without margin. That is the worrying notice launched in The Wall Street Journal by Robert Edwards, CRU analyst: “The market is quite tight […]. In the long term, there is a narrative around the scarcity of resources and the ecological transition with electric vehicles and renewable energy, as well as the construction of electrical networks. On paper, a significant supply gap opens in the next 10 years.” He is not the only one who has an impact on this idea.
“We already foresee large copper deficits until 2030,” agrees robin griffin, vice president of Metals and Mining at Wood Mackenzie, in statements to CNBC. The scenario painted by Goldman Sachs analysts is not too flatteringwith a deficit forecast for 2023 due to increased demand pressure and supply flow challenges.
And how does it influence prices? Another key question. At the end of 2022 Goldman Sachs predicted that its price could climb to a record value in one year, until reaching $11,000 by Ton. The estimate, combined with the expectations generated at the time by the relaxation of the “Covid Zero” policy in China and its possible effect on the demand for the mineral, caused a rise in the London metal exchange (LME) that raised the tonne above of 8,500 dollars. Calculations of the firm pointed out in December that a “supply peak” would be reached in mid-2024, “generating deficits from that point”.
A few months ago Juan Manuel Martínez, partner of the corporate Treasury Advisory Faas area of EY Spain, shared with the newspaper Five days its medium-term forecast: a ton of copper would remain above $8,500 over the next few years, with the risk of even exceeding $10,000. Its current price in London stands at 8,885although it has already exceeded 10,000.
And what is the cause? Better to talk about causes, like this, in the plural. One of the main ones is the increase in demand anticipated by McKinsey & Co, which is expected to reach 36.6 million metric tons by the beginning of the next decade. Analysts such as Aditi Rai of Goldman Sachs, they already warn that if we want to continue moving towards the objective of neutrality of emissions we will need a considerable additional amount of copper during the next years.
The Statista data reflect a sustained increase in the consumption of refined copper globally, going from 19.1 million metric tons in 2010 to 25.3 in 2021. The portal also shows a rise in production: from 16 million metric tons in 2010 to 22 million last year. how to collect TWSJanalysts point to the lack of new extracted resources and the modest production growth forecasts in hubs such as Peru and Chile.
A question of uses… and business. Copper is used in wiring, construction, the electric vehicle industry and solar panels, among a long and valuable etcetera. For the head of market analysis at Marex, Guy Wolf, the growth in demand is blocked and to attract investment to new mines it will be necessary for prices to rise to the $15,000 per metric ton. The truth is that the sector already registers relevant movementsas the interest from Glencore by Canada’s Teck with an eye on copper.
However, not all predict a horizon of imbalance and supply deficit. in 2022 the analysts of the RBC Capital Markets They forecast that global copper supply will exceed demand for at least the next two years thanks to project development. I even expected a price drop in 2023 and 2024.
not everything is market. That’s how it is. To fully understand the situation of the copper market, its recent drift and the current scenario, it is essential to take other factors into account. The Chilean Codelco, a heavyweight on the world copper map, recognized in January that it had registered a drop of 162,000 tons in its 2022 production compared to that of 2021. The “puncture” equates to a 10% drop, which the corporation has associated with the “specific difficulties” it faced during the year, such as structural failures and climatic phenomena.
Political factors, especially in South America, key to production, are also crucial. The situation that Peru, another of the large suppliers, has been going through for months has affected the sector. in january Bloomberg echoed that the protests in the country were reducing national copper production, putting about 30% at risk. Last year the markets they were expectant also before the approval of the new constitution in Chile and its possible impact on the sector. Another relevant factor is in Asia, more specifically in China, with forecasts of increased demand after the lifting of restrictions.
Cover image: Omid Roshan (Unplash)
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