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Falling copper hides deficit that risks climate goals



(Bloomberg Opinion) — Don’t be fooled by copper’s latest slump: Supply shortages will be so dire and prices so high in the coming years that it risks delaying the shift away from fossil fuels around the world.

That’s the conclusion of a new study from S&P Global that warns of an “unprecedented and unsustainable” copper shortfall in the coming decade as suppliers face demand that is set to nearly double by 2035. Prices, which fell below $7,500 a metric ton this week, they will soar back above their peak of $10,845 at the end of this decade, buoyed by the metal’s key role in the clean energy and transportation industries, S&P Global said.

“Either supply miraculously appears or the goal of the energy transition is simply delayed further,” S&P Global Vice President Dan Yergin said.

The bullish conclusions are a far cry from the slowdown of recent months, when copper lost a third of its value since peaking in March. Analysts from Goldman Sachs Group Inc. to Bank of America Corp. have cut their short-term forecasts in anticipation of a drop in consumer spending and industrial activity. The coming on stream of new supplies in Peru and the Congo has compounded the bearish sentiment.

However, in the long term, the equation changes. According to the S&P Global study, demand will reach about 50 million tons in 2035, compared to 25 million today. Since it is more difficult to find and develop new deposits, the main sources of supply will come from recycling and additions to existing mines.

If current trends continue, there would be an annual supply shortfall of almost 10 million tonnes by 2035, according to the study. This equates to 20% of projected demand for a net-zero emissions world in 2050. Even assuming aggressive growth in capacity utilization and historic recycling rates, the market would still face persistent shortfalls, including nearly 1.6 million tons in 2035, according to the study.

The S&P research was commissioned in response to concerns raised by governments and multilateral bodies about the minerals needed to meet climate goals, and was supported by copper producers such as Anglo American Plc and BHP Group. The study concluded that the widening supply gap would increase the United States’ dependence on copper imports from 44% to 67% in 2035.

To be sure, large deficits are hypothetical, as higher prices could boost supply or curb demand. This is the view of Ken Hoffman of McKinsey & Co., who believes that high prices may increase supply thanks to the efficiency of existing mines and increased scrap activities, as well as the drive to reduce the use of the metal in the new energy industries.

There may also be more price flexibility than anticipated in demand for electric vehicles, Hoffman, co-director of McKinsey’s electric vehicle battery materials research group, said in an interview. “The remedy for high prices is high prices,” he said. “Markets tend to tighten.”

original note:

Copper Rout Masks Future Supply Gap With Green Goals at Risk (1)

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