The metals markets seem to regard copper as the new lithium. The lack of new mining activity has added to concerns that the red metal will not be sufficient for the energy transition, a popular topic this week at the World Copper Conference in Santiago, Chile.
South America currently dominates copper production and Chile is the largest mined producer. Increasing mine production has proved a challenge, prompting a wave of industry bargaining and warnings of severe supply shortages over the next decade.
Copper is used in wiring and construction as well as in electric vehicles, solar panels and other green technologies. Electrification is expected to increase annual copper demand to 36.6 million metric tons by 2031, with supply estimated to be around 30.1 million tons, according to consulting firm McKinsey & Company, leading to a shortfall of 6.5 million tons by the beginning of the next decade.
According to the International Copper Study Group, the demand for refined copper in 2021 was 25.3 million tonnes.
“The market is pretty tight overall,” said Robert Edwards, copper analyst at CRU. “For a long time there is a narrative about resource scarcity and a green transition with EVs and renewables as well as building electricity grids. On paper it is opening up a considerable supply gap over the next 10 years,” he said.
However, “there is no slowdown in the system, no buffer,” said Guy Wolf, head of market analytics at Marex, at a recent conference in Switzerland. He said copper was the only metal with locked-in demand growth, but indicated that prices would need to be raised to $15,000 a tonne to attract investment in new mines. Futures on the London Metal Exchange are hovering around $9,000 a tonne.
Copper miners have been at the center of a recent boom in deal making.
PLC recently introduced $23 billion for Canadian Minor Tech Resources Ltd., potentially making it the third largest copper producer in the world. Tech declined the offer. BHP Group Ltd also got the court’s nod for the acquisition on Monday.
Oz Minerals Limited
However, analysts say that the main obstacle is the lack of newly mined resources. According to the International Copper Study Group, globally mined production is projected to be 21.8 million tonnes in 2022, an increase of only 1 million tonnes over the past three years.
Analysts forecast lower output growth in Peru and Chile. The mines have been operating at reduced staffing levels following local protests from community groups and slowed operations for reasons varying from worker safety to increased government control over mine assets. research firm Fitch Solutions estimates that copper mining production in Chile is expected to be around 5.7 million tonnes in 2023, the same amount as in 2020.
“We are now seeing some projects come online in Peru and Chile, which will add incremental supply, but there is not much in terms of pipeline in the longer term,” said Barbara Mattos, an analyst with the ratings company.
Investor Services. He cautioned that the new ores being mined are low grade, meaning that even if mining activity remains flat, the amount of copper produced is likely to be low.
Potential new supplies could come from rich copper seams in Congo and Zambia in Central Africa. They are being exploited now. However, the largest deposits are still in South America. According to Congo’s Ministry of Mines, exports of copper metal are expected to total 2.3 million metric tons in 2022, up from 1.8 million metric tons in 2021, less than half of Chile’s production.
It’s a “when” not an “if” for copper, according to analysts Demand is likely to increase. “The question is how fast this change will happen and exactly where,” Ms Mattos said.
Green uses of copper accounted for 4% of copper consumption in 2020, but this is expected to increase to 17% by 2030, according to a recent note from Aditi Rai, an analyst with
He said a “net-zero emissions” path would mean the world would need an additional 54% copper by 2030 on top of that forecast.
Changes in technology should ease some of the pressure on copper demand. Mr Edwards pointed to changes in battery packs that are already reducing copper use in electric vehicles. He also said that Chinese manufacturing is unlikely to maintain the pace it has kept for the past 20 years, which has helped offset some of the growth in green demand.
write to yusuf khan email@example.com
Copyright © 2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8