When Will Copper Go Up?

Copper is the

third most used metal

in the world and demand for this

critical metal

is rising amid tight supply.

Given this, 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 to match demand.

“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.

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FREE

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Copper’s inherent supply-demand imbalance has already sparked a record-breaking rally in 2021, pushing the copper price to an all-time high in mid-May. The price of copper has since pulled back a bit, nevertheless there is plenty of optimism that copper is entering a bull market.

Green energy in the driver seat

Copper’s many useful properties translates into intense demand for the

base metal

from a diverse range of industries. Construction and electrical/electronics have long been the main drivers for copper demand. With a conductivity rating 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.

“Copper is going to be a key metal required to build out the infrastructure that will deliver renewable, lower-carbon energy to end users,” said Greenspan.

China is driving much of the demand for copper as a n energy metal.

Metal Bulletin reported

that demand for copper in China, the world’s largest consumer of the metal, has rebounded from the coronavirus pandemic.

The Chinese government’s Made in China 2025 and China Standards 2035 initiatives includes

spending US$1.4 trillion

on copper heavy infrastructure programs including 5G networks, industrial internet, inter-city transportation and rail system, ultra-high voltage power transmission, and EV charging stations.

Globally, the EV market represents a growing source of demand for copper now and into the future.

Research firm Wood Mackenzie notes

that “EVs can use up to three and a half times as much copper when compared to an internal combustion engine (ICE) passenger car.”

Even so, according to

research conducted by IDTechEx

, energy storage may prove to be one of the most copper-intensive markets in the 21st century. Estimates show that for every kilowatt hour of lithium-ion battery use, 1.1 to 1.2 kilograms of copper is consumed. IDTechEx forecasts that by 2027, 600 kilotonnes of additional copper will be needed to match this demand.

“Copper is going through a once-in-a-hundred-year pivot with this global transition to electrification,” Gianni Kovacevic, CEO of CopperBank Resources (CSE:

CBK

,OTC Pink:CPPKF),

told the Investing News Network

(INN). “We need more copper in the next 20 years than was installed in the last 130 (years).”

Watch the full interview with Kovacevic above.

Meager mine supply

Demand is just one side of the story for copper prices.

In an interview with INN, Adam Rozencwajg of research firm Goehring & Rozencwajg shared his belief that “going forward, the next leg of this bull market is really going to be driven by supply as well.”

Watch the full interview with Rozencwajg above.

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 research report, S&P Global Market Intelligence analyst Kevin Murphy

painted a “dismal” picture

for copper mine supply. He revealed that out of the 224 copper deposits discovered between 1990 and 2019, a mere 16 were discovered in the last decade.

The tight supply dynamic has even led some to question if the market has reached

peak copper

.

The

coronavirus pandemic

has further exacerbated the challenges in the global copper supply chain as both copper 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.

The time and money needed to bring the current production capacity back online post-COVID-19 is another more immediate factor impacting supply. “We see risks that assets were undercapitalized in 2020 as mining companies were forced to deal with the pandemic by reducing workforces and cutting spending at their operations,”

said CIBC’s Greenspan

. “This will likely mean that some maintenance needs to be caught up on at the mines this year and that could impact production levels.”

Supply instability out of the world’s largest copper-producing countries, Chile and Peru, is also weighing heavily on the market in 2021. Together these South American countries represent a combined 40 percent of global copper output.

In Chile, some of the world’s biggest copper mines, including BHP (ASX:

BHP

,NYSE:BHP,LSE:BHP) and Anglo American (LSE:

AAL

), are facing a proposed

75 percent royalty rate

via an amendment to the country’s constitution. To the north in Peru, newly elected president Pedro Castillo has also made

raising mining taxes and royalties

one of the pillars of his campaign.

From a lack of new discoveries to sociopolitical insecurity in the world’s current mine production, the supply side of the copper market is also looking highly favorable for a future copper price rally.

Bull market or bust?

Strong demand and tight supply creates the right market environment for higher prices. So, when will copper go up?

The copper price reached a record high on May 10, 2021, topping

US$4.90 per pound

(US$10,802 per tonne) for the first time ever, before falling back to close at US$4.76 per pound (US$10,494 per tonne).

Copper’s strong rally has encouraged bullish sentiments of even stronger copper prices ahead. In a

recent podcast

, Goldman Sachs (NYSE:

GS

) metals strategist Nick Snowdown called copper “the new oil” as it will be a key metal in powering the green energy revolution. The analyst is

forecasting

an average copper price of US$9,675 per tonne (US$4.39 per pound) in 2021, with prices heading as high as US$15,000 per tonne (US$6.80 per pound) by 2025.

The commodity analysts at CIBC and Bank of America are also running with the copper bulls. In late May, CIBC

upped its forecast

for the red metal with average prices of US$4.62 per pound (US$10,185 per tonne) in 2021 and US$4.75 per pound (US$10,471 per tonne) in 2022.

Citing “positive economic data, USD weakness, continued Chinese demand, and tight global inventory levels” as key drivers, CIBC sees copper hitting US$5.25 per pound by Q4 2021 and into Q1 2022.

For his part, Bank of America commodity strategist

Michael Widmer is predicting

that copper prices will reach as high as US$5.87 per pound by the end of 2021. Basing his outlook on copper inventory levels being at their lowest point in 15 years, Widmer see copper easily reaching US$13,000 per tonne (US$5.89 per pound) in the next few years, and push further to US$20,000 per tonne (US$9.07 per pound) by 2025.

As the world’s biggest consumer of the metal, China is not in favor of soaring copper prices, nor the inflation brought on by higher commodity costs. There are reports that the Chinese government may

throw cold water on the copper price

by dumping some of its copper reserves into the market through a program slated to run through the end of 2021. The country is expected to do the same for

zinc

and

aluminum

, two other strategic metals used in infrastructure and energy.

Speaking of aluminum, Wood Mackenzie’s Julian Kettle, Senior VP, Vice Chair Metals and Mining, offers a contrary opinion on where copper prices are headed. He cautioned that at some point, high copper prices could

make aluminum an attractive alternative

to end users for some energy transmission applications.

Aluminum has traded in a range of US$0.90 and US$1.15 per pound (US$1,984 to US$2,535 per tonne) in 2021.

Aluminum’s conductivity is 60 percent of copper’s, however in a pinch the metal may make a suitable and more affordable option—taking the steam out of copper’s price trajectory. “Too many forecasts ignore the fact that aluminium is a serious competitor to copper in a number of high volume applications, including high- and mid-voltage power cable, busbars, transformer windings and motor windings,” explained Kettle.

He also pointed to historical evidence to back his argument, pointing to copper’s last supercycle when surging demand from China pushed copper prices to new heights and end-users into the arms of aluminum. The copper market subsequently lost about 2 percent or 500 kt per year of demand.

“Even if what we believe are fanciful forecasts of US$15,000-$20,000 per tonne for copper prove prescient, without commensurate aluminium prices of US$5,000-7,000 per tonne copper would see massive demand destruction, which would be accompanied after some time lag by supply growth,” concluded Kettle.

Now it’s your turn. When do you think copper prices will go up? Is the market headed to US$15,000 to US$20,000 per tonne copper in the next few years? Let us know in the comments below.

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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.