Experts are sounding the alarm about an “extreme” shortage on the horizon that could send prices skyrocketing for scores of essential products.
An “extreme” shortage of copper over the coming decade could drive the price of the crucial commodity up as high as $US100,000 ($140,000) per ton as supplies effectively “run out”, one expert has warned.
The looming supply shock is being driven by surging demand for electric vehicles (EVs) and other “green” technologies, coupled with chronic underinvestment and lack of expertise required to build new copper mines, according to Goldman Sachs metals strategist Nicholas Snowdon.
Speaking with Bloomberg’s Odd Lots podcast on Wednesday, Mr Snowdon predicted copper could rise from its current price of around $US9300 ($13,000) a tonne to $US15,000 ($20,000), and “we don’t rule out [that] copper could be a $US50,000 ($70,000), could be a $US100,000 ($140,000) commodity”.
Mr Snowdon explained that such a previously unheard of level was because, unlike energy and agricultural commodities such as oil or wheat, the price of copper only made up a very small part of the cost of the end product.
“So for the copper price to drive demand destruction in cars, in electronics, you’re going to have to see a massive outsized move in the copper price to achieve the necessary increase in the cost of the total good to drive that demand destruction, ” he said.
“The thing about the copper market is that we’ve never been in such an extreme set of fundamental circumstances. We’ve never had to go to end demand destruction pricing to achieve a rebalancing.”
Copper is the third most widely used metal in the world, with global demand of about 25 million tons per year.
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Chile is the biggest producer, accounting for more than one-third of the world’s copper, followed by China, Peru, the US, Australia, Indonesia, Zambia, Canada and Poland.
Currently “non-green” demand such as electronics, wiring in buildings and other infrastructure makes up more than 90 per cent of that demand, Mr Snowdon said.
“Green” demand from EVs, charging infrastructure and the renewable energy sector was only about 1.5 million tonnes today, but that is tipped to sharply increase to between six and seven million tonnes by the end of the decade, largely driven by China.
“When we look at the outlook for the copper market over the course of the next three, five, 10 years, what we see are essentially impossibly large deficits developing over that timeframe,” he said.
“By the middle of this decade, we’re forecasting the largest ever deficit in the copper market. This market has such severe imbalances that they’re not resolvable at current price levels.
“That’s the crux of the issue in the copper market. It’s just an impossibly tight future. At today’s price, there’s no fundamental adjustment under way that that can meaningfully solve what lies ahead.”
The problem, according to Mr Snowdon, was that unlike in the early 2000s during the last bull market, companies were not responding to the surging demand with new mines.
“Over the last two years, even though the copper [price] has doubled, there hasn’t been a single new copper mine approved,” he said.
He blamed “conservatism” after the mining industry faced a “near-death experience in 2013 and 2014” as a result of overbuild in the mid to late-2000s, as well as environmental, social and governance (ESG) influence on investment decisions.
“Less capital has flowed into commodity sectors because they haven’t screened well through the ESG filter,” he said.
And even if companies do want to build new mines, increased regulatory hurdles and lack of industry expertise were causing further delays.
In Chile, for example, getting the right permits could take up to three years before even breaking ground – triple the time it took 20 years ago.
He said all of these factors were feeding into a broader talent crunch in the mining sector.
“There literally are a handful of teams recognized around the world who are good at building and growing production at copper mines,” Mr Snowdon said.
“Even if you decide today, we are going to spend several billion on a new copper mine, you’re still going to struggle to find the engineering team to support that … [and] you’re going to have to pay top dollar.”
Asked whether companies such as Tesla, which has already signed deals to source nickel from specific suppliers, might start investing in copper extraction, Mr Snowdon said it was “perfectly possible” but currently the issue was not “front and centre”.
“In two, three years’ time, given how tight things are going to get, we will be hearing very, very similar conversations around copper,” he said.
“Now that’s absolutely too late. Those conversations need to be happening today. If the miners are not willing to start to invest, then it should be these key downstream consumers who are pushing that. But it will probably happen too late and as a result, prices are going to go absolutely ballistic.”