Where will the copper scales tip?

Global refined copper output in January-April 2023 soared 8% YoY to nearly 9 million tonnes, while consumption rose only 3% to 8.6 million tonnes, leading to a 384,000-tonne surplus, compared with a 43,000-tonne deficit in the same period last year.[1] As a result, the price of copper started to go down (see Fig. 1). Will this trend persist and what will happen to prices in the longer term?

New projects that came on stream in Peru (Quellaveco), the Democratic Republic of the Congo (Kamoa Kakula), Mongolia (Oyu Tolgoi) and Chile (Quebrada Blanca) have made a sizable contribution to production growth – more than enough to meet the market needs. Yet, with demand now outpacing supply, the surplus may soon turn into a deficit.

Much of the demand is set to come from the energy sector. The IEA’s STEPS scenario[2] projects a 57.7% increase in copper usage for electricity grids in 2030 from the level observed in 2022 (see Fig. 2), while overall demand for this commodity is expected to reach 31 million tonnes, a marked rise from the current 25 million tonnes, to be driven mostly by renewable energy generation. According to McKinsey, electrification is projected to push annual copper demand to 36.6 million tonnes by 2031.[3] While current mining projects, coupled with recycled copper production, offer a pathway to 30.1 million tonnes, another 6.5 million tonnes of capacity remain to be found.

Supply growth is being restrained by a number of factors. For example, heavy rains that hit Chile last month resulted in an estimated loss of 7,000 tonnes of copper for state-owned Codelco,[4] which may dampen forecasts for the whole year. Declining copper head grades is another issue, which puts a drag on mining productivity. Though copper output in Peru rose 35% in May compared with the same month last year,[5] local miners complain about red tape jamming up new projects, which are already battered by regular protests.[6] Confronted with this and other challenges, Peru could end up losing its mantle as the world’s No. 2 copper-producing nation to the Democratic Republic of the Congo.[7] And some countries, such as the US, don’t see a supply risk for copper at all and refuse to add it to the critical minerals list.[8]

All of these factors are heating up the market. And the current lull could be the calm before the storm, which will hit other sectors as well, while copper, according to some forecasts, could jump tenfold.[9] To avoid major supply shocks, it’s necessary to invest heavily in copper production and bring new mines to fruition as planned.