Equilibrium in Refined Copper Markets
Copper is considered to be among those industrial materials that have the greatest economic value and trading activity in the market of commodities all across the globe. In light of copper’s flexibility, processability, and ability to be shaped with extreme accuracy and conformity, it is widely used in various domains and industries.
Just, for instance, consider its usage in the entire manufacturing process of influential commodities, particularly the equipment and supplies employed in the electronics and technological industries, the transportation section, especially electronic vehicles, constructions as well infrastructures for the transition to renewable energy sources.
Manufacturers, users, and traders of the finance sector have kept their eyes on the copper market as much as any changes in copper prices signal fluctuations in the economic world and global macroeconomic trends. So what makes copper prices fluctuate is closely correlated with crucial variables of the world economy.
Refined, concentrated, blistered, and scrap copper are among the commodities that are exchanged in the different trade markets. But the predominant need for, or application of, copper in industrial sectors has been allocated to refined copper. Consequently, it is refined copper that has been valued as the referenced price of copper among all the other types of copper traded on the markets.
It is to be said that there is a long-term and solid equilibrium relation between the price of copper and the amount of refined copper import, the output value of refined copper, the amount of copper scrap import, the consumption of refined copper, capitalization in real estates, and the consumer price index, in the light of the fact that all of these factors have a significant long-term impact on copper prices.
In so far as the prices of copper are of the utmost importance for copper producers, manufacturers, consumers, and investors, with the copper market being directly related to its supply and demand balance, let’s further analyze the equilibrium in refined copper markets today and in the coming decade.
Short-term outlook of equilibrium in refined copper markets
According to the ICSG, the markets for copper across the globe are estimated to be in surplus in 2022 and 2023 by 142,000 tonnes and 352,000 tonnes, respectively.
That is to say, the increased output from newly opened and expanded mines, along with the economic recovery from pandemics, are projected to impact global mine production in 2022 positively.
With the increasing growth of Chinese electrolytic infrastructures and the newly expanded operational processes in the Democratic Republic of the Congo, the worldwide refined copper output is predicted to increase by around 4.3 percent in 2022 and 3.6 percent in 2023.
At the same time, it is anticipated that the overall global consumption of refined copper will rise by 1.9 percent in 2022 and 2.8 percent in 2023. ICSG estimated the world consumption growth down to 1.9%, announcing a weak economic perspective across the world primarily as a consequence of the invasion of Russia and Ukraine as well as the negative repercussions of global lockdowns in China. To the point that the prices of copper and aluminum dropped to three-month lows since some concerns have been raised about copper demand in 2022 with the United State’s Federal Reserve increased interest rate that has kept the market tight and the decline in the copper consumption by the largest consumer China.
Not to mention the reduced capitalization in infrastructures, the sidelined manufacturing procedures, the stalled property constructions, the debilitated global trends, and the slow and steady economic growth are some of the other factors that have impeded the recovery of the copper price in 2022 and 2023.
So as shown in the following table, the supply and copper demand forecast indicates that there is not any copper deficit at least in 2022 and 2023, and there would be a partial balance in the gap of the refined copper market.
Long-run outlook of equilibrium in refined copper markets
Having said all of this, when it comes to the question of what is the outlook of copper prices, in the long run, a number of researches have been accomplished, for example, by Wood Mackenzie, Goldman Sachs, and Citigroup, which are all reliable expert-oriented commodity market agencies, concluding that there will be an inadequate amount of copper supply to equalize its increasing demand.
Therefore, as illustrated in Figure 1 below, it is predicted that there would be a substantial deficit in refined copper commodities by 2030.
So come along with us to scrutinize the dynamics of copper supply and demand in the global market by 2030 to see the reason behind such a huge disequilibrium.
On the one hand, over the next ten years, the metal mining sector will encounter a variety of problems, some of which are more exclusive to particular projects than industry-wide.
This industry is confronted by four main problems, including grade decrease and depletion of reserves, the effects of climate change, challenges on the environment, society, and management, which is widely referred to as ESG, along with policy and legal constraints.
Here is more elaboration on each of the problems, the first of which is the decrease in copper grade and depletion of the reserves in current mines. But a myriad of existing mines may somewhat counter this hindrance by optimizing their throughput, as the new ones can run profitably at lower grades thanks to the grade’s growth and the use of new technologies. These approaches, however, necessitate ongoing capitalization on additional brownfield and greenfield potential.
The next big issue is climate change, just like it is the case for so many other industries. Notwithstanding the undeniable need for additional copper to achieve global climate change objectives, tighter limits on industrial activities may make it harder to supply refined copper.
Nevertheless, when it comes to the contest of metals that are not iron-based, especially copper’s best alternative, aluminum, the records of low-level carbon emissions are so desirable that it persuades governments to give priority to copper economic expansion, similar to the case with most other influential minerals.
Moreover, it has become crucial for copper producers to concentrate on ESG problems and reduce their emissions in the current era when environmental concerns are of the utmost importance.
A large portion of these environmentally friendly procedures will only be attainable via the use of sustainable approaches in mine planning, which entails integrating new technologies and modern methods into operating mines and, specifically, into new mine projects whenever feasible.
This encompasses ore processing and refinement, the dry stack tailing method, the application of green power sources, electrification of equipment, reducing the mines’ environmental impacts, and digitalization of the procedures. Additionally, these actions will lower operating expenses while increasing productivity, efficiency, and security.
Other ESG and political difficulties are among the remaining challenges. These entail socio-political instability, difficulties with obtaining permits, and problems with the wastes, power, and water sources. Although these problems affect the whole sector, they might even be locally or project-specific too.
On the other side, the consumption patterns for multiple products are changing rapidly because of the growing demand for EVs and sustainable energy sources. One of these materials that seem to be a main benefactor of decarbonization is red metal, being necessary to serve up the transition to renewables which is used in the production, distribution, stockpiling, and the use of electricity that has met the target of net-zero emissions.
Whereas there could also be some counterbalance to rising copper consumption in the framework of the decline in other sources of power supply and typical transport systems (ICEs), copper application in EVs, solar, wind and energy storage systems is most likely to enjoy substantial rising yields in the future.
Armed with the aforementioned copper supply and demand data, as well as some other considerations as the likes of the potential of new mine projects, the trend of new demands stimulated by the investors active in the domain of transition to a green future, and the predicted increase in global copper consumption; one can estimate that there might be a total rise of 7.0 Mt in the supply side of the refined copper in 2030.
As illustrated in Figure 2, this is made possible by new concentrates of copper and SX-EW processing along with an expanded supply of copper scrap. In 2030, the refined copper output is anticipated to reach 31.7 Mt, up from 24.7 Mt in 2020.
Relying on market consensus statistics, the demand for renewable energy has been considered to be a surge of 4.6 Mt from 2020 to 2030, while no adjustments for decreased growth of copper used in EVs have been made.
In contrast to the current regular norm of 2.5% for continuing non-renewable copper usage, the projection for this case has been supposed to be 2.0%, being conducive to having an overall demand for refined copper of 33.6 Mt in 2030, or a 3.1% CAGR, ultimately ending up in the market deficit of approximately 1.9 Mt, which is a sign of disequilibrium.
What this conclusion signifies is the fact that the gap between copper and demand would not be balanced even in the current decade, calling for ever more investments in the production of greenfield and brownfield as well as more technological innovation in the copper industry to overcome the probable hurdles in the refined copper production which would eventually lead to the rise in copper prices.
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