Despite the volatility, underlying demand remains strong and many investors are buying into the copper market now on a longer-term bet that prices will spike as surging usage in renewable energy and electric vehicles coincides with a collapse in new supply in the early 2020s, he said.
“There are a lot of investors out there who are playing copper on a three-year horizon, not a three-month horizon,” Rahim said by phone from Geneva. “Unless it’s derailed by constraints on global trade, that looks set to continue.”
Copper prices have dropped below $6,800 a metric ton on the London Metal Exchange, down 6.6 percent year to date, but they’ll remain comfortably above last year’s average of $6,200, he said, speaking ahead of Cesco copper week in Santiago, one of the industry’s biggest annual gatherings.
The unprecedented rise in copper inventories on exchanges around the world has dented confidence, but rebounding demand in China following a seasonal low point over the Lunar New Year should help to erode the glut, Rahim said. Trafigura expects copper demand to grow at about 2.5 percent globally this year.
The refined-metal market will remain comfortably supplied through the year, boosted by excess inventories and a strong supply of scrap, before steadily moving into a deepening deficit, fueled by chronic under-investment in new mine supply during the downturn in commodities earlier this decade, Rahim said.
Due to that lack of spending, the pipeline of copper mines set to come online in the next few years is the smallest seen so far this century, both in terms of number and production capacity, according to BMO Capital Markets. The lack of expected new supply growth from 2019 to 2022 is likely to push the market into deficit, Colin Hamilton, managing director for commodities research at the bank, said in an emailed note. “New copper projects simply aren’t emerging the way they used to, ” he said.
There are already signs that mine supply is falling short. Treatment and refining charges — which are paid to smelters to turn semi-processed ores, known as concentrates, into metal — have fallen to the lowest since at least 2013, according to Metal Bulletin Ltd.
“The concentrates market and the refined metal market are two different stories right now,” Rahim said. “We’re already seeing signs of strain in the concentrates market, but that hasn’t filtered through into the refined-metal market yet.”
At the same time, the global pivot away from polluting fossil fuels will boost copper demand significantly and exacerbate the supply tightness in coming years, Trafigura predicts. Metals used in electric-vehicle batteries like nickel and cobalt have captured the market’s attention due to a likely spike in demand and prices, but copper will also play an enduring role in the EV industry and the infrastructure needed to support it, Rahim said.
“You can argue all you want about which battery technologies will get adopted, but ultimately that energy will need to be transmitted through the car, and so copper demand is going to be a clear winner in this area,” he said. Taking into account the additional charging infrastructure needed, electric vehicles will require about five times more copper than a conventional car, Trafigura estimates.
(Written by Mark Burton)
