According to analysts, a global copper deficit is expected to affect the markets throughout 2023 and potentially last for the rest of the decade. The current shortage is being driven by challenges in South American supply streams and rising demand.
Copper plays a crucial role in measuring the economic health as it is widely used in various applications, including electrical equipment and industrial machinery.
A shortage of copper may signal a worsening of global inflationary pressures, leading to a prolonged hawkish stance by central banks.
Robin Griffin, Vice President of Metals and Mining at Wood Mackenzie, has forecasted major copper deficits through 2030, largely due to ongoing unrest in Peru and increased demand in the energy transition industry.
Griffin stated, “Political unrest has a range of impacts, including the possibility of having to shut down mining sites.”
Unrest in Peru
Since the impeachment trial that resulted in the removal of former President Pedro Castillo in December, Peru has been experiencing protests. The country is responsible for 10% of the world’s copper supply.
On January 20, Glencore announced the suspension of operations at its Antapaccay copper mine in Peru, following an incident where protesters looted and set fire to the site.
Chile, which is the largest producer of copper in the world accounting for 27% of global supply, reported a 7% year-on-year decline in November.
Goldman Sachs stated in a note dated January 16th that they expect Chile to produce less copper from 2023 to 2025.
However, Timna Tanners, Managing Director at Wolfe Research, warned against getting overly influenced by the current news.
According to Tanners, disruptions in the market are not uncommon and she predicts that 2023 will see an increase in the production of several new mines.
The price of copper futures settled at $4.035 per pound on Monday, according to data from the CME. The metal reached a low of $3.9930, which was its lowest point since January 10th, when it traded as low as $3.9875.
Managing copper consumption
The reopening of China and growth in the automotive and energy transition industries have fueled demand for copper, putting additional pressure on copper supplies. Tina Teng, a market analyst at CMC Markets, stated that the reopening of China has a significant impact on copper prices as it improves the demand outlook and further drives prices upward due to the current shortage of supply. The rollback of stringent Covid-19 policies in Beijing is expected to speed up the country’s economic recovery and pent-up Chinese demand.
According to Teng, the copper deficit may persist until 2024 to 2025, when a potential global economic recession may occur, at which point copper prices may double. However, Timna Tanners from Wolfe Research stated that she does not anticipate a sudden surge in copper activity and consumption as China recovers. Tanners noted that copper consumption did not slow down significantly in 2022 and that the broader trend towards electrification will likely be a larger fundamental driver for copper demand.
Copper plays a key role in electricity-related technologies and the energy transition, as demonstrated by the significant growth in the number of electric vehicles worldwide, which more than doubled in 2021 to reach 16.5 million according to the International Energy Agency. This growth will necessitate a ramp-up of the EV-charging ecosystem. Robin Griffin, Vice President of Metals and Mining at Wood Mackenzie, stated that there is a longer-term issue surrounding the supply of copper in the energy transition industry due to the expected significant growth in both the automotive and transmission sectors.
Lee Ying Shan@cnbc
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