The world may soon face a copper shortage, as widening supply and demand deficits threaten to push the price of the metal to $20,000 per metric ton before 2025.
According to a note published by Bank of America commodity strategist Michael Widmer and later seen by CNBC, copper inventories have fallen to levels not witnessed in 15 years, and are only able to cover 3 weeks worth of demand. “Linked to that, we forecast copper market deficits, and further inventory declines, this year and next,” he said.
The latest copper shortages come just as the global economy is showing signs of recovery and industrial sector demand is rising. “With inventories close to the pinch-point at which time spreads can move violently, there is a risk backwardation, driven by a rally in nearby prices, may increase,” Widmer explained. Increased volatility from declining inventory levels does not come as surprise, Widmer added, pointing to nickel shortages at London Metal Exchange warehouses between 2006 and 2007 that caused a 300% rally in nickel prices.
The Bank of America anticipates that copper prices will surge to $13,000 per ton over the next several years, after hitting $10,000 last week— the highest in nearly a decade. If our expectation of increased supply in secondary material, a non-transparent market, did not materialize, inventories could deplete within the next three years, giving rise to even more violent price swings that could take the red metal above $20,000/t ($9.07/lb),” Widmer said.
Elevated copper prices also received a further boost by a weakening US dollar and a government spending agenda that focuses on green infrastructure, Livermore Partners managing director David Neuhauser told CNBC. “I think copper is the new oil and I think copper, for the next five to 10 years, is going to look tremendous with the potential for $20,000 per metric ton,” he added.
Information for this briefing was found via CNBC. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.