Goldman Sachs metals strategist Nick Snowdon believes the global renewable power drive will push copper prices from the current US$4.29 per pound to US$6.80 per pound by the end of the decade. He adds that the fundamental supply and demand outlook is so dire that he doesn’t rule out an “absolutely ballistic” temporary price spike to over US$20 per pound before 2030.
Mr. Snowdon appeared on Bloomberg’s Odd Lots podcast on May 30 (available on Apple podcasts here and Google here) with a remarkably bullish story. The key points were that copper inventories are already low, the metal is largely irreplaceable as an electricity conductor for electric vehicles and renewable power, and there’s little-to-no new copper production on the horizon.
Goldman Sachs estimates global copper production of 24 million tonnes for 2022. Of that only 1.5 million tonnes will be consumed by decarbonization efforts - primarily electric vehicles and new wind and solar power.
Renewable power-related demand for copper, however, is set to climb to between six and seven million tonnes annually by 2030, according to the strategist.
There has been, in Mr. Snowdon’s words, “a complete absence of fresh investment in the sector” despite the expected jump in demand. This sets the stage for the largest ever copper supply deficit by the middle of this decade.
Mining companies have remained disciplined on spending. The permitting process for new mines has extended in length from six to 12 months in the 2000s to between two and three years now. The end result is that not a single new copper mine has been approved over the past 24 months. There are previously permitted projects coming onstream in Latin America and Africa in the next 18 months, but nothing afterwards.
For Mr. Snowdon, the expected supply shortage “is not resolvable at current prices,” meaning that prices are too low now to spur the necessary investment in new production. Decarbonization will not be possible without much higher copper prices first.
The commodity price has been weaker of late, down 11.5 per cent from the five-year high hit in March of this year. Goldman Sachs attributes this to lower demand from a lockdown-ed China and higher-than- expected exports from Russia. If Mr. Snowdon’s longer-term forecasts are correct, this will prove an ideal time to add to domestic copper miners like First Quantum Minerals Ltd., Lundin Mining Corp, or Teck Resources Ltd.
-- Scott Barlow, Globe and Mail market strategist