Analysts expect that the global market will experience a copper shortage this year that may last until 2030. The red metal will play a crucial role in the energy transition, given its use in industrial machinery and electrical equipment. Higher demand pressures and challenges affecting the South American supply chains are fueling the metal’s shortage.
A copper squeeze may signal that inflationary pressures will worsen globally, which may, in turn, push central banks to lengthen their hawkish stance.
Robin Griffin, VP of Metals and Mining at Wood Mackenzie, stated that the firm had forecasted major copper deficits to 2030. Griffin mainly attributed the deficit to higher demand for the metal in the energy transition and the ongoing unrest in Peru, which had led to mine closures.
Since former President Pedro Castillo was ousted late last year following an impeachment trial, Peru has been experiencing internal conflicts. Castillo was arrested after attempting to dissolve Congress in a bid to cling to power.
Peru makes up 10% of copper supply globally, coming second to Chile.
Last month, Glencore announced that it would be halting operations in its Antapaccay copper mine, following a looting and fire at its premises.
Chile, which is the biggest supplier of copper globally, also recorded a 7% decline in production in November 2022. In a note, Goldman Sachs stated that it expected Chile to reduce copper production between 2023 and 2030.
China’s reopening has put a further strain on the red metal, with one CMC Markets analyst noting that this move will greatly impact copper’s price, especially with the current shortage, making mining harder. Tina Teng, the analyst in question, argued that China’s economic recovery and increase in demand would also cause the price of copper to double in the near-term.
Not all share this sentiment, however, with Wolfe Research’s MD Timna Tanners noting that she did not expect a huge surge in consumption of copper as China recovered. Tanners also posited that the number of copper mines in operation may increase this year, adding that broader electrification would greatly drive copper demand. She explained that building charging infrastructure for electric vehicles would be even more copper intensive.
Data from the IEA shows that in 2021, the sale of electric vehicles increased significantly, bringing the total number of electric cars globally to roughly 16.5 million. This means that the electric car-charging ecosystem will need to be boosted to meet expected future demand.
As copper inventories around the world become squeezed, copper extractors such as Southern Copper Corporation (NYSE: SCCO) are likely to increasingly become the subject of investor interest.
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