A worker inspects batches of processed copper at Mutanda Mining Sarl, Democratic Republic of the Congo Per-Anders Pettersson/Getty Images Europe
Copper will be crucial in achieving decarbonization and replacing oil with renewable energy sources, and right now, the market is facing a supply crunch that could boost the price by more than 60% in four years, Goldman Sachs said in a report on Tuesday.
Increased demand and likely low supply are set to drive up the price from the current levels of around $9,000 per ton to $15,000 per ton by 2025, the bank said.
As a cost-effective metal, copper is majorly important in the process of creating, storing and distributing clean energy from the wind, sun and geothermal sources as it has the physical attributes needed to do so, Goldman's team of analysts, led by Jeff Currie, said in a report titled "Copper is the new oil".
"Discussions of peak oil demand overlook the fact that without a surge in the use of copper and other key metals, the substitution of renewables for oil will not happen,' the report said.
Copper will be needed to create the new infrastructure systems required for clean energy to replace oil and gas, however there has not been enough of a focus on this so far according to the report.
Demand will therefore significantly increase, by up to 900% to 8.7 million tons by 2030, if green technologies are adopted en masse, the bank estimates. Should this process be slower, demand will still surge to 5.4 million tons, or by almost 600%.
Copper is a key part of sustainable technologies, including electric vehicle batteries and deriving clean energy. As the deadline of the Paris Agreement comes closer, political and economic pushes towards renewable energy and green technology are becoming stronger.
Just two weeks ago, US President Biden announced an infrastructure package worth $2 trillion, which specifically encourages new sustainable technologies and infrastructure projects.
In its current state however, the copper market is not prepared for the increased demand, Goldman Sachs argue. The copper price has risen by about 80% in the last 12 months, but there hasn't been a matching rise in output.
"The market is already tight as pandemic stimulus (particularly in China) have supported a resurgence in demand, set against stagnant supply conditions," Goldman said.
The benchmark three-month copper futures price on the London Metal Exchange was last up 1.4% at around $9,022 a ton, while NYMEX copper futures were up 1.5% at $4.09 a pound.
As the expansion of mines and creation of new copper production fields takes years, this is likely to lead to shortages of the metal. To prevent a depletion of copper supply within two years, prices must rise now to encourage investment and an expansion in output, Goldman said.
At present, Goldman Sachs "now estimate a long-term supply gap of 8.2 million tons by 2030, twice the size of the gap that triggered the bull market in copper in the early 2000s".
Copper production declined in 2020 due to government restrictions and lockdowns during the Covid-19 pandemic. The world's largest copper producers, Chile and Peru, were hit especially hard by the pandemic, which could impact supply until 2023, according to commodity analysts S&P Global. Last week, prices spiked following Chilean border closures related to the pandemic.
Global copper production is however predicted to increase by 5.6% in 2021 after declining by 2.6% in 2020, according to a GlobalData report published in February.