Copper prices have been soaring since the beginning of this year, rising by 29% year-to-date. Copper futures at COMEX traded at $5 per pound as of 15 May, marking the highest level since March 2022 when the base metal's price reached an all-time high.
BHP's takeover offer to Anglo American has brought attention to the prosperous copper mine sector. The transition towards green energy, the rise of electric cars, and the AI boom have all contributed to a surge in demand for copper. However, underinvestment in base metal mining could exacerbate the issue of undersupply in the coming years.
China plays a key role in copper’s supply chain
The immediate catalyst for the price surge could be attributed to China's recent measures to stimulate the economy. The Chinese Finance Ministry announced plans to issue 1 trillion yuan of ultra-long bonds for investment in infrastructure. This news led to a spike in copper prices on Tuesday, given China's status as the largest importer of copper.
China, acting as both a significant copper supplier and consumer, holds a pivotal position in shaping trends within the critical metal market. In March, Chinese copper smelters reached an agreement to reduce production by 5% to 10% in response to a sharp decline in copper treatment charges. This development propelled copper prices to a one-year high, surpassing $4 per pound initially.
Subsequently, a significant decline in the value of the US dollar propelled copper prices to surpass a 14-month high, reaching above $4.2 per pound in early April. The weakening of the dollar was attributed to uncertainties surrounding the Federal Reserve's interest rate trajectory. However, the surge in copper prices was primarily driven by fund buying, driven by speculation that central banks would implement interest rate cuts throughout the year.
An imbalance outlook in supply and demand
Fundamentally, the global industrial shift towards renewable energy, electric vehicles, and the burgeoning AI sector has collectively bolstered copper's demand outlook.
According to S&P Global: "Copper prices are anticipated to ascend in the long term as a result of the clean energy transition, notwithstanding prevailing short-term apprehensions." The organisation forecasts that copper demand will double, reaching 50 million metric tons by 2035. The most significant demands are expected to emanate from the US, China, Europe, and India.
According to Statista, total copper mine production amounted to approximately 22 million metric tons in 2023, up from 16 million metric tons in 2010. Projected growth suggests that worldwide production will reach 30 million metric tons by 2036, assuming production continues at the same pace. However, this projected increase falls significantly short of the anticipated surge in demand.
AI to further boost demand for copper
In addition to the energy transition, the AI boom is accelerating demand for copper, particularly in the construction of data centres. According to Reuters, citing Trafigura, AI may drive demand for copper to increase by one million metric tons by 2030. Bank of America predicts that a combination of supply shortages and growing demand will propel copper prices to surge to $5.44 per pound by 2026, representing an additional 11% rally from the current price.
Meanwhile, the copper mining industry is poised for a slowdown in the upcoming year. A report by Goldman Sachs indicates that investment in mining companies in 2022 was nearly 50% lower than the expenditure in 2010. Disruptions in copper mines, often occurring in Latin America, could result in a widening deficit in copper supply from 2024 onwards.
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