Last year, Russia's invasion of Ukraine led to major disruptions in the global supply chain and precipitated Western sanctions, sending oil prices soaring across the world's economies. In the US, the aftermath was particularly acute as gasoline prices rose sharply, jumping from an average of $3.40 per gallon in January to an eye-watering record of $5 by June.
Now, as global economies rebound from the aftershocks and subsequent oil price spikes, a new commodity is emerging as a potential powerhouse: copper. In the age of renewable energy and electric vehicles, it's becoming clear that copper is the linchpin of the green revolution.
According to CitiGroup, by 2025 the copper boom will make the 2008 oil price hike “look like child’s play.”
Max Layton, Managing Director of Commodity Research at Citi, compared the upcoming copper surge to the 2008 oil rally when oil prices went from $50 a barrel in mid-2006 to over $140 a barrel by the end of 2007.
Copper is now considered the "new oil" due to its role in electric vehicle (EV) batteries and green energy technologies like solar panels and wind turbines and in turn, could see a similar upside in the next three years.
Although copper prices are expected to decline in 2023 due to China's economic struggles and slower global growth, Citi sees this as an opportunity. Layton suggests that cautious investors start buying copper gradually over the next year, anticipating that China's economic reform and energy transition will drive prices to $15,000 per metric ton by 2025, potentially yielding returns ranging from 50% to 100%.
Despite the short-term challenges, the world’s eighth largest copper producer KGHM Polska Miedź endorsed Citi's bullish outlook, stating that the long-term rise of EVs and the green revolution will boost global copper demand. KGHM believes that limited supply, increased taxes on new mining projects, and environmental regulations are expected to keep copper prices high in the coming years.
Investment research company The Oregon Group also sees rising demand and the imminent copper supply shortage as a major driver in the copper market boom.
In its latest report titled “Copper: At the Centre of the Metal Supercycle,” The Oregon Group highlights how the burgeoning demand for copper from battery megafactories, solar facilities, and electrified transport is rapidly surpassing supply, heralding the emergence of a new metal supercycle.
The Oregon Group Anticipates Historical Copper Supply Gap
According to The Oregon Group, global copper consumption has tripled in the past half-century. The ongoing global transition to cleaner energy sources is expected to further escalate the demand for copper.
“When global copper demand increases, it typically does so at a pace that outstrips supply side growth, leading to rapid price rises.” - Anthony Milewski, The Oregon Group
Initiatives in various countries, some of which have set legally-binding carbon targets, indicate a continued upward trajectory for copper's demand. As remarked by Daniel Yergin from S&P Global, copper will play a pivotal role in our energy transition, being central to electrification.
Here are some highlights from the report:
Currently, China stands as the most substantial consumer of copper but The Oregon Group forecasts more diversified geographical demand in the future. With the world's emphasis on green transitions, copper's demand is also coming from an increased number of sources.
Despite vast global reserves, a crucial distinction exists between reserves and actual production. The fact is, the lack of operating mines and projects ready for production presents a significant challenge. With over a decade of underinvestment in new copper supplies, combined with today’s high costs and complexities associated with exploration and development, the supply challenge becomes very clear.
The mining industry's response has been mergers and acquisitions rather than exploration and production enhancement. In short, they are consolidating supplies but not necessarily increasing them. By 2024, mine supply growth is expected to peak, potentially resulting in a massive deficit by 2035.
Supply-demand disparity is bound to impact prices. Recent trends suggest a rise in copper prices due to tightening supplies, but some volatility remains. Goldman Sachs even predicts that prices could reach $15,000 a ton by 2025.
The Oregon Group’s comprehensive report not only provides a wealth of data about the dynamic copper industry and analyzes the major drivers that will continue to drive price growth in the near future, it presents invaluable insights for investors eager to tap into the expanding copper market including a list of copper stocks and ETFs to consider.
Click here to read The Oregon Group's full report Copper: At the Centre of the Metal Supercycle for an in-depth insight into the copper market, its key trends, and the major players.
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