Copper Shortage 2023 – Is there currently short supply of copper worldwide?

Copper Shortage

Why there is Copper shortage in 2023? Everything from electrical systems and air conditioners to computer chips and toasters uses copper. Since March, the cost of copper has decreased by about a third. Investors are selling their holdings because they fear a global recession will lower demand for a metal linked to expansion and development.

BCA Research recently predicted a 595,000 metric tonne physical worldwide refined copper shortfall in 2022. According to them, the supply and demand for copper will stay tightly balanced for the next 10 to 15 years.

In the coming year, copper prices will rise to all-time highs, according to Goldman Sachs. Due to an anticipated supply shortage and rising demand, the physical metal market will remain in deficit in 2023. Let us read in detail about the copper shortage in this article.

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Why is there a shortage of copper?

Copper Shortage

Copper is a crucial material used in a variety of products. This is due to its superior electrical conductivity. Copper is used in wind turbines, smartphones, EV batteries, pipes, and machinery.

The demand for copper has been hampered by the collapse of China’s real estate sector. However, the development of renewable energy technology more than makes up for it and will result in decreased supply. The goal of the European Union to double solar energy capacity has been increased.

The Chinese real estate market’s instability is receiving a lot of attention. However, the demand for infrastructure, notably the copper demand associated with electric vehicles, more than makes up for it. It balances the real estate weakness and boosts their rising consumption.

Traders are hurrying to meet supply needs. The declining inventory raises the possibility of an unexpected price increase. Currently, copper sells for just about $7,400 per tonne, which is still 30% less than its March peak price of $10,000 per tonne.

The risk is that there will be “an imbalance between the timing of the rise in demand and when supply meets that requirement,” said Mike Henry, chief executive officer of BHP Group Ltd. This is true even though sufficient reserves of copper and other metals, such as nickel and lithium, are essential to carbon reduction.

The copper market is predicted to see another unstable year following a poor 2022. Several facts accounted for this. Some commodity analysts predict that the base metal will be stuck between the current green energy transition, the global recession, and the rising demand for electric vehicles.

Increasing demand and tight supply on the market helped copper start 2022 strongly. On the London Metals Exchange, copper prices climbed to historic highs. The first quarter of 2022 was above $10,000 per tonne, with U.S. high-grade copper prices rising beyond $5 per pound.

The record prices didn’t last long. Fears of an upcoming recession increased, causing a severe downturn. This caused copper prices to drop below $7,000 a tonne, or $3.20 per pound, reaching a nearly two-year low. Despite recovering from its multi-year low, copper is still expected to conclude the year down more than 14%.

Many commodity analysts anticipate further low copper prices in the future. At least in the first half of the year, stricter monetary policies and poor demand from China have negatively impacted the market.

Commodity analysts at ING stated the following in their 2023 outlook report: “Downturn fears; China’s slowdown due to its COVID-19 regulations.” The direction of the Fed’s interest rate hikes will continue to determine the near-term price forecast for copper. But throughout 2023, tighter supply should keep the red metal’s better prices over $7,500/t.

Copper prices in 2023 due to short supply

According to ING, the copper market is expected to improve in the second half of 2023, with prices supported at over $8,000 per tonne. Bank of America’s commodity experts is slightly more upbeat. After a weak beginning to the year, they predict that copper prices will rebound in the year’s second half. The bank anticipates that prices could rise above $12,000 per tonne.

Goldman Sachs is positive on copper as it sees past any short-term downturn, joining Bank of America in this view. Early in December, the banking institution increased its anticipated price for copper for the next 12 months from $9,000 to $11,000 per tonne.

According to Goldman Sachs, copper prices will average about $9,750 per tonne in 2023 before rising to $12,000 per tonne in 2024.

The CIBC commodity analysts are slightly less positive on copper as they anticipate a slowdown in demand. The Canadian bank expects copper prices to average roughly $3.35 per pound in the year’s first half, down 11% from their prior prediction. The average price per pound is predicted to increase to $3.65 in the second half of next year.

Why there is Global copper shortage?

Copper Shortage 2023

The globe advances its energy infrastructure and switches to green, renewable energy. Thus copper has gained a reputation as an important long-term metal.

We can anticipate an improvement in copper demand due to the rapid use of renewable energy and electric vehicles (EVs). Copper is crucial in EVs’ electric motors, batteries, wiring, and charging stations. According to analysts at ING, “copper has no alternatives for its usage in EVs, wind, or solar energy.” Hence its attraction to investors as a vital green commodity will maintain higher prices in the coming years.

According to a survey, S&P Market Intelligence analysts predict that by 2035, the world’s demand for copper will have doubled. By 2025, the research company will project substantial copper shortfalls. All energy transition strategies require copper, the “metal of electrification.” Wires are needed for deep electrification, and copper is the material of choice for wires. 

Electric vehicles (EVs), charging infrastructure, solar photovoltaics (PV), wind, and batteries, among other technologies essential to the energy transition, all require copper. Copper usage in those products is significantly more than their conventional fossil-based equivalents. As the change moves forward, the potential supply-demand mismatch will grow significantly. Thus, the long-term copper market could begin in 2023.

Copper mining shortage

Executives of mining companies favor safe, quick returns. The switch to a metal-intensive energy source is in danger due to the enormous lack of investment in new copper mining and exploration.

A significant amount of copper will be needed to transition to a decarbonized economy. This results from extending transmission lines, installing new cables for renewable energy sources, and electrifying current appliances and vehicles. Despite this almost guaranteed demand, the mining sector has spent much of the last ten years. They are redirecting their earnings from exploration to locating and establishing significant new copper projects.

Industry members have preferred growing mines with stronger assurances of near-term shareholder returns. They also aim to increase dividends and share buybacks. However, it takes years for new copper mines to become profitable. Risks associated with them include obtaining permits and shifting political environments. While this is happening, discoveries usually need to be of better quality, increasing the cost of copper extraction.

For a quick economic shift toward electrification and renewable energy, these difficulties add to hurricane-force headwinds. In its most optimistic view, S&P Global projects that there will be a global shortage of copper. There is a 1.6 million metric tonnes shortage of copper by 2035, with significant deficits starting this decade. According to the projection, that shortage will rise to 9.9 metric tonnes in 2035.

The mining industry can only quickly make up lost time because of the lengthy lead times for mine development. According to the National Mining Association, obtaining the 

Permissions required to open a mine in the United States typically take seven to ten years. The lead time increases significantly after a deposit is identified.

According to economists, this prolonged lead time may discourage businesses from opening or exploring new resources, with erratic copper prices and government regulations that could impede progress or contribute to political unrest. For instance, miners in Chile have warned that a government proposal to raise taxes on copper production could result in a reduction in mining investments. This is due to a growing political leftward movement in South America, the world’s top producer of copper.

Conclusion

The possibility that this most important metal may soon be difficult to find, however, is being hidden by the price decline. Trading exchanges’ inventories are close to historical lows. Price volatility means that new mine production, which is already expected to taper off in 2024, could become considerably more restricted in the years to come. Furthermore, some significant producers claim that the current low prices do not allow them to invest in new endeavors.

For months, if not years, experts have expressed concern about a potential copper shortage. The most recent market decline also has the potential to create future supply issues. It may worsen by giving consumers a false sense of security, stifling cash flow, and restricting investment.

A shortage of copper could slow global economic growth, increase industrial costs, and delay global climate goals.

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