Goldman sees copper price “breakout”, risk of “extreme scarcity episode”

Copper’s just so hot right now. Image: Codelco.

After a 26% rise in 2021, copper prices have struggled for direction this year.  On Thursday, March futures made another attempt to find higher ground, jumping to $4.7085 a pound ($10,380 a tonne) the highest since October’s spike. But on Friday, the bellwether metal was once again under siege, dropping nearly 4%.

In a new research report, Goldman Sachs says the copper price is “building towards a breakout” as worries about the global economy, particularly China’s engine of growth – property, begin to ease:

“With a diversified set of demand drivers – from EVs to electrical grids – sustaining a very tight micro into 2022, we believe that copper will reprice once these broader macro concerns abate.”

Goldman says the limited seasonal build-up of copper inventories from record low levels – currently at just over 200,000 tonnes – scarcely enough to cover three days of global consumption  is “entirely insufficient to tackle” its expected deficit of 197,000  tonnes for this year.   

“The longer this continues, the higher the risk of extreme scarcity episode by the end of the year,” Goldman says in its report released Tuesday. 

Mid-October copper futures jumped to an intra-day high of $4.82 a pound or $10,633 a tonne in New York after available LME inventories fell to its lowest since 1974

Goldman believes the copper market has just two years of primary production growth left. 

After fresh tonnes from the likes of Ivanhoe Mines Kamoa-Kakula in the Congo, Anglo American’s greenfield Quellaveco project in Peru and Teck Resources Quebrada Blanca Phase 2 in Chile hit the market, the investment bank sees “an open-ended decline in mine supply.” 

Amid long-standing issues such as declining grades and a dearth of new projects there is also growing uncertainty in Chile, the world’s top producer by a long stretch, about onerous taxation and threats of state appropriation. 

Goldman says a mining royalty bill before the South American nation’s parliament has the potential to put at risk as much as one million tonnes of production.

​​”Such political uncertainty raises the threshold for much needed investment in future mine supply, creating an additional hurdle for prices to overcome.”

In the report, Goldman reiterates its bullish forecast for copper to average $11,875 a tonne ($5.40/lbs) in 2021, rising steadily to $15,000 ($6.80/lbs) during 2025.