After copper prices reached $10,000 per tonne for the first time in 10 years last week, the market’s bullish sentiment on copper prices remains high.
Bank of America is even crying out that copper could run out in three years if expectations of increased supply of secondary materials (an opaque market) fail to materialize, at which point copper prices could reach $20,000 per tonne in 2025.
In the analysts’ view, copper is indispensable for countries around the world to drive the green energy transition, and without a significant increase in the use of key metals such as copper, there will be no renewable energy to replace oil.
And with the current tight supply in the copper market, only a much higher price than the current one can stimulate the copper supply gap to be replenished, and copper prices are destined to soar.
Soaring Copper Prices
Last week, copper prices reached $10,000 per ton for the first time in 10 years.
For future copper price trends, Michael Widmer, commodities strategist at Bank of America, believes copper prices could soar to $13,000 per ton in the next few years.
And if expectations for increased supply of secondary materials (an opaque market) fail to materialize, copper could run out of steam within three years, when it could reach $20,000 per ton in 2025.
Earlier, a Goldman Sachs report titled “Copper is the New Crude Oil” said that the current $9,000 per ton copper price is too low to avoid the risk of stocks running out in the near future.
Based on Goldman Sachs’ scrap and demand models, Goldman Sachs expects that to avoid the risk of running out of stocks and oversupply, the most likely future trend for copper prices will be above $11,000 by 2025, with an average price of $9,675 per ton in 2021, $11,875 and $12,000 per ton in 2022 and 2023, respectively, and $14,000 and $12,000 per ton in 2024 and 2025, respectively. 14,000 and 15,000 USD, respectively.
In light of this, Goldman Sachs raised its 12-month copper price target to $11,000 per tonne, up $500, or nearly 4.8%, from the 12-month copper price target Goldman Sachs reiterated two weeks ago.
“Risk of “copper depletion
Widmer highlighted in Tuesday’s report that copper inventories in terms of tons are currently at levels seen fifteen years ago, which means that current copper inventories can meet market demand for just over three weeks as the global economy gradually recovers and expands.
We expect to see a shortfall in the copper market this year and next, with inventories falling further.
At the same time, Widmer said, copper spot premiums could rise as (LME) inventories approach a critical point and spreads could fluctuate sharply.
The spot premium is the price at which an indicator asset trades above the price in the futures market for that asset.
Widmer also highlighted that rising volatility due to declining inventories is not without precedent, as nickel shortages in LME warehouses in 2006/7 led to a nickel price increase of more than 300%.
Goldman Sachs, on the other hand, believes that the current long-term copper price of $8,200 per ton is not high enough to stimulate the development of sufficient greenfield projects to address the long-term supply gap. If copper prices remain at $9,000 per ton for the next two years, the supply gap will cause the market to run out of copper stocks by early 2023.
The “New Oil”
As for why there is a risk of “copper depletion”, it is not unrelated to the green energy transition.
With the overall economic recovery, copper in electric car batteries and semiconductor wiring and many other fast-growing industrial sectors play an important role in boosting demand for copper.
Goldman Sachs even said that without copper there would be no decarbonization.
As the most cost-effective conductive material, copper occupies a central position in capturing, storing and transporting new energy sources. Without a significant increase in the use of key metals such as copper, there will be no renewable energy to replace oil.
Goldman Sachs noted that the global economy’s move toward net-zero emissions remains a core driver of a structural bull market in commodity demand, and copper is particularly important among the metals needed for green energy.
David Neuhauser, founder and managing director of U.S. hedge fund Livermore Partners, said in an interview with CNBC that the weaker dollar and increased green infrastructure initiatives have provided an overall boost to the metals market.
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