Copper’s Outlook Dims as Threats Increase

CRU Group, a business intelligence company, believes that copper’s outlook may not be as bright as we thought, thanks to a myriad of market risks. While speaking at a mining conference in Toronto, the CRU Group director of copper research and strategy Vanessa Davidson stated that these threats could stand in the way of copper’s growth at a time when the world needed the metal to help wean itself off of fossil fuels.

During her remarks, she listed some threats, which included reduced gross domestic product (GDP), reduced industrial production caused by geopolitical upheaval, increasing rates of inflation and the economic effects of the coronavirus pandemic. In the near term, copper is threatened by copper substitutes, increasing scrap availability, decreasing rates of industrial metal use and the slow uptake of green technologies. All these risks pose a major threat to copper’s outlook.

Last week copper prices on the London Metal Exchange fell by 2.3%, and despite rising more than 25% each year for the past two years, copper has gone down 4.4% thus far. This most recent price fall was the highest-ever drop in a month and was partly caused by fears that the economy will enter a recession due to interest rate hikes by the Federal Reserve.

Davidson remains optimistic about the red metal’s long-term demand outlook however, thanks in part to expected consumption by renewable-energy technologies coupled with the electric vehicle industry. The green-energy industry is expected to increase global copper demand by an extra 2 million tons by 2030, she said. Furthermore, her company’s latest forecast shows that global demand for copper is predicted to rise by 2.1% each year until it hits 28.5 million tons in 2030.

Copper consumption by green-energy technologies is also expected to increase, she added, rising from 2% of total copper consumption in 2015 to roughly 20% by the year 2040.

In the near term, the copper market may run into some hiccups, especially if the transition from the use of fossil fuels to green energy doesn’t pick up as expected. Without the demand from green-energy technologies, Davidson noted at the Prospects & Developers Association of Canada conference, worldwide consumption of copper will level out at 25 million tons in 2027.

In March, the company’s head of base metals supply stated that by 2030, there could be an annual copper supply deficit of 4.7 million tons and that the copper industry would need to pour more than $100 billion into new copper mines to meet this supply shortfall. However, the threats outlined by Davidson may put a damper on this demand, especially from the green-energy and electric-vehicle sectors, which will cause sales to plateau.

At the moment, major extractors such as Freeport-McMoRan Inc. (NYSE: FCX) may not be overly concerned about the fluctuations on the market because the long-term outlook is a bullish one for copper.

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