In people's minds, as an indispensable raw material in the global energy transformation process, the price of copper is naturally as low as possible. However, from a supply and demand perspective, everything is clearly not that simple. Many people in the industry have begun to worry that the long-term decline in copper prices may pose a challenge to the global transition to renewable energy in the future.
Mining companies will need to excavate vast amounts of new copper deposits in the coming years to meet the needs of the transition to renewable energy. However, demand for copper from manufacturers and builders is currently declining.
Wall Street analysts believe that the result of this timing mismatch is that the copper market is currently facing a temporary glut, causing copper prices to continue to decline, which in turn hinders the expansion of copper production to meet the world's expanding wind farms. Some projects will be put on hold to make necessary mining investments to meet demand for solar panels, solar arrays and electric vehicles.
Nicholas Snowdon, metals strategist at Goldman Sachs, has expressed concern that this dynamic has left the copper market facing a crisis that could lead to price spikes and severe supply shortages.
He even believes that "it is only a matter of time, not if, the market will enter a state of extreme shortage and copper prices will soar."
Low copper prices are making mining companies reluctant to expand production prematurely
Over the past 10 months, COMEX copper prices have fallen more than 15% to about $3.60 per pound.
One reason for the pressure on copper prices is industry concerns about the economic prospects of major consuming countries. Other downside factors include a stronger U.S. dollar, a slowdown in global manufacturing and the resolution of supply disruptions in Chile and Peru, the two largest producers.
At least two copper mining companies have said at recent earnings meetings that they need to wait for prices to rise before committing to large-scale new investments.
Freeport-McMoRan President Kathleen Quirk cited the higher capital costs of developing new mines.
Glencore CEO Gary Nagle also said he wanted to deliver copper to the world when it was needed, not earlier. He also said he wants copper prices to reach at least $4.50 a pound before opening a new mine in Argentina, where he expects copper production to last three decades.
"We want to make a lot of money every year for 30 years," Nagle said.
Water far away cannot quench near thirst; near trouble may become distant worry
Max Layton, global head of commodities research at Citigroup, said that although new energy, batteries and transmission lines require more copper, they still account for less than 10% of global copper consumption.
But copper prices are likely to weaken further in the coming months as new supply arrives and the 90% of copper demand not related to the energy transition weakens. The Eurozone is facing an economic recession, and many Asian economies are showing new signs of slowdown. The International Copper Study Group (ICSG) predicts that copper production will exceed demand next year by 467,000 tons.
"In the short term, people are very concerned about how low copper prices will go," said Sudakshina Unnikrishnan, base metals analyst at Standard Chartered Bank.
On the London Metal Exchange, speculators' bearish positions on LME copper outnumber bullish positions and have reached their highest level in a decade, according to data from TD Securities. Even many who expect copper prices to rise now prefer to buy shares of producers rather than directly hold copper futures.
However, on the other hand, the time window for production expansion may not wait for anyone.
Many analysts said that because the development of new mines takes several years, copper companies may need to invest as soon as possible. McKinsey & Company predicts that energy transition trends are expected to increase annual copper demand to 36.6 million tons by 2031, with supply expected to be approximately 30.1 million tons. In other words, the copper market will have a supply gap of 6.5 million tons by then.
China is the powerhouse behind this market, currently consuming more than half of the world's copper and making huge investments in renewable energy and electric vehicles. According to data from Goldman Sachs Group, China's solar-related copper demand increased by more than 150% in the first three quarters of this year compared with the same period in 2022.
Goldman Sachs expects the growing supply gap to push copper prices to $4.50 per pound within a year and above $6.80 per pound by 2025.
Christopher Guérin, CEO of French cable supplier Nexans, mentioned the dilemma that many companies are currently facing. The company's pipeline projects have tripled in the past five years, largely due to clean energy projects. His company currently consumes more than 500,000 tons of copper per year. Although he is also worried about copper shortages in the future, in order to avoid buying at high levels now, he still limits the amount purchased in advance to what is needed for production.
“Governments may be able to make strategic reserves like oil or other things, but companies can’t really do anything,” Guérin said.
