Create FREE account or log in

to receive MINING.COM digests

Copper supply expected to move into deficit in 2021, says StoneX

The first copper cathode harvest at Taseko Mines’ Florence copper project in Arizona. Credit: Taseko Mines.

Copper was already trading near eight-year highs in January but prices for the red metal surged again in mid-February, with March contracts reaching $4.12 per lb. on Feb. 22 – nearing an all-time high of $4.58 per lb. in 2011, as investors bet that supply tightness will increase as the world gradually recovers from the covid-19 pandemic.  

Natalie Scott-Gray, a senior metals analyst at StoneX, forecasts copper demand in 2021 will rise by about 5% year-on-year, outstripping supply, which she expects to grow by 2.3% year-on-year. If her predictions come true, that means the global copper supply will move from a small surplus in 2020 to a potential deficit of more than 200,000 tonnes of copper this year. “We do not foresee a recovery in global supply this year, with Chinese markets more or less balancing out,” she said in an interview.   

Surging copper prices have driven up the share prices for miners of the metal

Copper inventories in London Metal Exchange-registered warehouses as of Feb. 19 were trading at 75,700 tonnes, close to a 15-year low of 75,550 tonnes in September 2020. 

In some areas of the physical copper market, supply is at its tightest in years and may come under even more pressure as smelters in China face shrinking profit margins for processing raw ore into refined metal, with copper treatment charges, an indicator of refining margins, at US$50.16 per tonne, the lowest since 2012, according to a Feb. 22 Bloomberg report.    

Scott-Gray expects copper demand outside China to start picking up in the third quarter, when some of the lockdowns from the Covid-19 pandemic, particularly in western countries, begin to ease. Driving demand for copper will be the electrification of the car industry, energy storage, and 5G networks, among other things, she said. “Globally, this provides a very bullish narrative for copper that will increase demand over the medium-term.” 

On Feb. 11, Reuters reported that the European Automobile Manufacturers’ Association has said the EU should target one million charging points for electric vehicles by 2024, and three million by 2029 to support the electrification of the car industry in Europe. 

While these targets may not necessarily be met, said BMO’s Colin Hamilton in a research note to clients on Feb. 12. “We do see the European EV sector as one of the fastest-growing globally over the coming years … and thus of needing significant investment in accompanying charging infrastructure.” 

He noted that the EU only has about 225,000 public charging points at present and the additional growth “should be a net positive for copper demand.” 

Surging copper prices have driven up the share prices for miners of the metal, and some have risen by double digits over the last month.  

Jiangxi Copper, China’s top producer, is now trading at $30.32 per share in Hong Kong, the highest level since mid-September 2011, while Freeport-McMoRan (NYSE: FCX) is trading at $37.57 per share, the highest since November 2012.  

Over the medium-term, prices are forecast to remain on an upward trajectory. “In the longer-term, as demand starts to accelerate at a slower pace, improvements in scrap supply occur, and a degree of recovery happens on the primary supply side, copper prices will start to plateau in the mid to latter part of the decade,” Scott-Gray said.  

The secondary market for scrap copper will play an increasingly important role in meeting future demand, she said, noting that copper doesn’t lose its properties or quality when recycled.  

Although copper recycling rates are already significant, with over a third of the world’s copper currently produced via secondary markets, she believes there is still room for further growth.  

“We have seen improvements already occurring — with China’s new import legislation on scrap copper, which will reduce reliance on primary demand in the country this year compared to last year — as well as [the resumption of] quota-controlled imports of copper scrap into China [after a ban in 2018],” she said. 

The increased push for electrification should also open the gates for further investment in copper recycling.  

(This article first appeared in The Northern Miner)