As construction sectors across developed economies continue to experience significant growth amid the pandemic, and the production of electric vehicles continues to rise, the supply of copper may soon not be able to keep up with demand.
According to S&P Global, the global refined copper market is expected to hit a deficit of 5,000 tonnes this year, which will increase to more than 200,000 tonnes over the next four years. Likewise, the demand for copper is forecast to rise by 0.2% to 24.5 Megatonnes, with demand surpassing supply even before 2024. S&P Global director of metals and mining research Mark Ferguson forecasts that copper prices will rise to an average of $7,258 per tonne, up from a prior August projection of $5,840 per tonne.
Pandemic related work stoppages in several key copper-producing countries, including the US and Peru, have lead to existing capacity falling short of demand. In addition, delayed investments amid the pandemic will also have long-term repercussions for copper supply. As S&P Global Market Intelligence commodity analyst Thomas Rutland noted back in October, the period leading up to 2024 will likely see a drop in refined production output due to declining mine production growth rates in the absence of significant investments into copper projects.
In the meantime, China, which accounts for more than half of the world’s copper consumption, has decided to open up its commodities markets to increase its pricing power. As a result, international investors will now be able to trade copper futures on the Shanghai International Energy Exchange, with contract sizes remaining the same as those subject to local traders. However, contracts intended for oversees investors will be exempt from taxes and customs duty, and will be delivered to bonded warehouses.
As China continues to strongly recover from the coronavirus pandemic, the country’s copper imports surged to 2 million tons in the third quarter. According to official data, the first nine months of the year saw Chinese copper imports increase by 41% compared to the same period a year earlier, which in turn played a significant role in pushing copper prices to a two-year record high. As China continues to expand its construction and power sectors, its increasing demand for copper will become a major force in global consumption growth.
Information for this briefing was found via S&P Global and Reuters. 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.