Copper is crucial in decarbonization and the use of renewable energy, and the market is facing a supply crunch, which could push copper prices up by more than 60 per cent in four years, Goldman Sachs (Goldman Sachs) said in a report on Tuesday.
The bank said increased demand for copper and possible supply shortages would push copper prices from about $9000 a tonne today to $15000 a tonne by 2025.
A team of Goldman Sachs analysts led by Jeff Currie said in a report entitled "Copper is New Oil" that copper, as a cost-effective metal, plays a vital role in creating, storing and distributing clean energy from wind, solar and geothermal resources.
"the discussion of peak oil demand ignores the fact that the tendency to replace oil with renewable energy will not occur without increased use of copper and other key metals." They added.
Copper will be used to create new infrastructure systems for clean energy alternatives to oil and gas, but so far, not enough attention has been paid to it, the report said. With the surge in use in electric vehicles and renewable energy projects, copper supplies can only be replenished at much higher prices.
As a result, Goldman Sachs estimates that if all green technologies are adopted, demand will increase significantly by up to 900 per cent to 8.7 million tonnes by 2030. If this process slows, demand will still soar to 5.4 million tonnes, an increase of nearly 600 per cent.
Carbon reduction will greatly increase copper demand
Copper is a key component of sustainable technology, including electric vehicle batteries and derived clean energy. As the deadline for the Paris agreement approaches, the political and economic impetus for renewable energy and green technologies is getting stronger.
Compared with traditional power generation and automobile fuel, electric energy is the best intermediary carrier of all energy sources, and the input, storage and output of electricity can not be bypassed by the most mature and cost-effective conductor material-copper.
At present, a considerable number of countries around the world are promoting carbon neutralization and carbon peak, and their development paths include deep decarbonization of electric power, the development of green energy, such as wind power and photovoltaics, and the improvement of electrification in terminal areas, such as new energy vehicles, coal-to-electricity in the industrial sector, and so on.
Carbon reduction measures on both the generation side and the power side will promote the use of copper. For example, the utilization rate of copper in photovoltaic and wind power equipment is more than 8-12 times that of traditional power generation systems, while the conversion of coal to electricity in the industrial sector will greatly increase the use of transformers and motors, thus stimulating the demand for copper; the plug-in system and charging piles of new energy vehicles also need to consume a lot of copper.
Just two weeks ago, President Joe Biden announced a $2 trillion infrastructure package that specifically encourages new sustainable technologies and infrastructure projects.
The supply of copper has not kept up.
However, Goldman Sachs points out that the copper market is not yet ready for an increase in demand. Copper prices have risen by about 80 per cent in the past 12 months, but production has not increased accordingly.
"as massive stimulus measures, especially in China, support the recovery in demand, the market is already tight, especially when supply is stagnant." Analysts at the bank wrote.
(LME) copper rose as much as 1.4 per cent to $9020 a tonne on the London metal exchange on Wednesday. All metals rose, with tin prices up 1.2 per cent and aluminium up 1 per cent.
As the expansion of mines and the establishment of new copper production areas will take several years, this may lead to a shortage of copper. Goldman Sachs said that to prevent copper supplies from drying up within two years, prices must now rise to encourage investment and expand output.
At present, Goldman Sachs "now estimates that the long-term supply gap will reach 8.2 million tonnes by 2030, double the gap in the copper bull market at the beginning of this century".
Earlier, Trafigura Group, a leading metals trader, also predicted that copper prices would hit an all-time high of more than $10100 a tonne, and then continue to rise sharply. At the heart of both forecasts is the warning that unless prices rise sharply to stimulate supply, the copper market will be in severe shortages in the coming years.
