Industry analysts anticipate that copper’s bullish trajectory will persist for the next three years, propelled by global supply constraints and heightened demand for the metal, essential for advancing energy transition and artificial intelligence technologies.
This forecast bodes well for companies like Freeport-McMoRan (NYSE:FCX), BHP (NYSE:BHP), and others, as the ongoing decarbonization efforts and technological advancements continue to propel the demand for copper, following a similar surge triggered by China’s rapid industrialization two decades ago.
However, concerns loom over several key projects, leading some to speculate that production might struggle to keep pace with the escalating demand.
These topics are set to take center stage at the CRU World Copper Conference in Santiago, Chile, from April 15-17. The conference, the largest annual gathering of industry leaders, investors, and analysts, will delve into the challenges facing the world’s largest copper producer, Chile, whose output has stumbled in recent years.
Copper, renowned for its exceptional electrical conductivity, finds extensive use in motors, batteries, and wiring globally, earning it the moniker “Dr. Copper” due to its role as a barometer for global economic health.
The burgeoning demand for copper is underscored by projections from commodity trader Trafigura, indicating that data centers powering AI servers alone will necessitate an additional 1 million metric tons of copper by 2030. Moreover, the burgeoning electric vehicle market, which requires four times more copper than traditional internal combustion engine vehicles, is poised to further drive demand.
“Copper’s second secular bull market this century is taking hold,” remarked Citi analyst Maximilian Layton, forecasting a demand-supply gap of 1 million metric tons over the next three years. Layton anticipates the possibility of significant price surges over the next two to three years.
According to reports from Citi and Bank of America, copper prices are expected to reach $12,000 per metric ton by December 2026. Prices hovered around $9,378 per metric ton on Wednesday, nearing a 14-month high.
In light of the bullish outlook, Citi advises automakers and other stakeholders to hedge their copper purchases, cautioning that unmitigated price spikes could collectively cost manufacturers an estimated $320 billion, equivalent to approximately 0.4% of global GDP.
Recent production challenges faced by industry players like First Quantum (TSX:FM), Ivanhoe Mines (TSX:IVN) (OTCQX:IVPAF), Anglo American, Codelco, and others, alongside electricity supply issues in Zambia, Africa’s second-largest copper producer, have further compounded supply concerns.
Consequently, Citi has revised its global copper supply forecast for this year, projecting a meager 0.7% increase compared to the earlier anticipated 2.3% rise.
“The growing scarcity of mine projects is emerging as a significant challenge for the copper market,” observed Bank of America analyst Lawson Winder.
Navigating the Copper Market’s Supply Challenges
One of the most significant disruptions to the copper market occurred late last year when Panama instructed First Quantum to halt operations at its Cobre Panama mine, a facility contributing approximately 1% of the world’s copper supply. Despite the Canadian miner initiating arbitration proceedings against the Panamanian government, analysts remain skeptical about the mine’s prospects for reopening, if at all, before 2029.
“This event served as a major catalyst for tightening the market,” noted Jonathan Beigle of Ridgeline Royalties, which specializes in acquiring royalties from copper, lithium, and other critical minerals producers. Beigle anticipates copper prices surpassing $12,000 per metric ton within a few years.
In Arizona, Rio Tinto’s (NYSE:RIO) plans to develop one of North America’s largest copper mines face legal complexities. Although the project received a favorable court ruling last month, an appeal to the US Supreme Court is expected.
Chile’s own copper production woes are poised to be a focal point at the upcoming conference. State-controlled Codelco, responsible for a quarter of Chile’s copper output, has grappled with operational challenges, resulting in its lowest production levels in 25 years.
Regulatory uncertainties stemming from President Gabriel Boric’s administration, coupled with his tense relationship with the mining industry since assuming office in 2022, initially deterred investment. However, efforts to mend relations have been underway.
“The investment climate in Chile has significantly improved,” remarked Kathleen Quirk, incoming CEO of Freeport-McMoRan, which had temporarily halted a mine expansion project in the South American nation. “While there were bumps in 2022 and 2023, it’s much more positive now.”
Featured Image – Freepik
