NORTHERN MINER - COPPER SUPPLY EXPECTED TO MOVE INTO DEFICITCopper was already trading near eight-year highs in January but prices for the red metal surged again in mid-February, with March contracts reaching $4.12 per lb. on Feb. 22 – nearing an all-time high of $4.58 per lb. in 2011, as investors bet that supply tightness will increase as the world gradually recovers from the covid-19 pandemic.
Natalie Scott-Gray, a senior metals analyst at StoneX, forecasts copper demand in 2021 will rise by about 5% year-on-year, outstripping supply, which she expects to grow by 2.3% year-on-year. If her predictions come true, that means the global copper supply will move from a small surplus in 2020 to a potential deficit of more than 200,000 tonnes of copper this year. “We do not foresee a recovery in global supply this year, with Chinese markets more or less balancing out,” she said in an interview.
Copper inventories in London Metal Exchange-registered warehouses as of Feb. 19 were trading at 75,700 tonnes, close to a 15-year low of 75,550 tonnes in September 2020.
In some areas of the physical copper market, supply is at its tightest in years and may come under even more pressure as smelters in China face shrinking profit margins for processing raw ore into refined metal, with copper treatment charges, an indicator of refining margins, at US$50.16 per tonne, the lowest since 2012, according to a Feb. 22 Bloomberg report.
Scott-Gray expects copper demand outside China to start picking up in the third quarter, when some of the lockdowns from the Covid-19 pandemic, particularly in western countries, begin to ease. Driving demand for copper will be the electrification of the car industry, energy storage, and 5G networks, among other things, she said. “Globally, this provides a very bullish narrative for copper that will increase demand over the medium-term.”
On Feb. 11, Reuters reported that the European Automobile Manufacturers’ Association has said the EU should target one million charging points for electric vehicles by 2024, and three million by 2029 to support the electrification of the car industry in Europe.
While these targets may not necessarily be met, said BMO’s Colin Hamilton in a research note to clients on Feb. 12. “We do see the European EV sector as one of the fastest-growing globally over the coming years … and thus of needing significant investment in accompanying charging infrastructure.”
He noted that the EU only has about 225,000 public charging points at present and the additional growth “should be a net positive for copper demand.”