— This is the script of CNBC's news report for China's CCTV on January 5, 2024.
Recently, several analysts have told CNBC that they expect copper prices to increase significantly in the next two years. A report from Citigroup suggests that copper prices could reach $15,000 per ton in 2025, the highest since the $10,730 peak in March 2022.
According to the latest data from the London Metal Exchange, the closing price of the 3-month contract is above $8,500 per ton, indicating that a potential increase of over 75% in copper prices in the next two years is anticipated.
The surge in copper prices is driven by both macroeconomic factors and supply-demand dynamics. From a macro perspective, both BofA and Fitch's BMI believe that the market mostly expects the Federal Reserve to cut interest rates in 2024, which could weaken the U.S. dollar, making copper priced in dollars more attractive to foreign buyers.
Looking at the supply-demand dynamics, copper plays a crucial role in the global energy transition as a major raw material for electric vehicles, wind turbines, and solar systems. During COP28, more than 60 countries expressed support for doubling global renewable energy capacity by 2030. Citigroup predicts that the renewable energy targets set by these countries will lead to an additional demand for copper of 4.2 million tons by 2030, significantly boosting copper prices.
On the supply side, two major copper producers have either halted or planned to cut production. Global supply reduction in copper raw materials may lead to an obvious tightening cycle in the copper market. Last year, Canadian mining giant First Quantum Minerals received a notice from Panama's Ministry of Commerce and Industry urging them to halt operations, including mining, processing, beneficiation, and transportation, at the Cobre Panama copper mine, one of the world's largest copper mines. This decision was related to local environmental protests.
Another major copper producer, Anglo American, recently stated that it would lower its copper production targets for 2024 and 2025 due to cost-cutting needs. The production target for this year will be reduced from 1 million to approximately 730,000 to 790,000 tons. This adjustment is roughly equivalent to removing the production of a large copper mine from the global copper supply.
Industry insiders also pointed out that many copper ores' grades have become lower, meaning that useful metals extracted from the same amount of ore will be less, leading to higher extraction and refining costs, resulting in an increase in copper prices.
Mike Henry
The BHP's CEO
"Many people don't realize this, the world's going to need two times as much copper in the next 30 years. Copper resources are becoming harder to find They're becoming lower grade, which means generally more more expensive."
Goldman Sachs predicts a copper shortage of over 500,000 tons this year and expects prices to reach $10,000 per ton within the year. This copper boom will also benefit Chile and Peru, which have rich copper reserves. It is reported that Chile holds about 21% of the global copper reserves.