Goldman Sachs Predicts Extreme Copper Supply Crunch

Nick Snowdon, a metals strategist at Goldman Sachs, recently stated that predictions on copper supply issues in the long term were potentially right and would probably cause the metal’s price to reach $15,000 per ton. The demand for copper is expected to rise significantly over the next 10 years as demand for electric cars, electricity infrastructure and renewable energy increases alongside international targets for reductions in carbon emissions.

The new supply cannot meet the increasing demand, however, with the significantly low supplies of the red metal held in exchange warehouses only worsening the issue. Snowdon added that while the 2000’s bull market was almost completely solved by supply and increases in mine investments, that approach would not work this time around.

Analysts believe that increased supply of the red metal may negatively affect fundamentals for battery metals in the short term, with Snowdon comparing the fundamentals emerging in the copper market to lithium’s current surge in price and the oil boom that occurred in the 2000s.

At the start of the decade, oil was trading at about $30 per barrel. At the decade’s end, it was trading at approximately $140 per barrel, which represents a significant increase in price. This increase was enough to resolve the imbalances oil faced in the 2000s, which Snowdon believes are similar to what the red metal’s market is facing today.

Lithium is currently trading at almost six times above its cost curve, which usually occurs in commodity markets that are facing fundamental imbalances. He explained that given copper’s case, the red metal’s price would probably have to increase significantly in order to resolve its balance issue, noting that it wouldn’t be easy to cause destruction of demand in this particular metal.

With regard to base metals, the end of Shanghai’s lockdown may have prompted a run in these metals, with copper reaching a new high of $9,542 per ton and nickel rising overnight by more than 3% to reach $29,280 per ton.

This news, which also saw iron ore and zinc perform positively, was followed closely by monthly PMIs in China, which are broad health indicators of this country’s major economy. China’s manufacturing PMI rose to 49.5 by last month’s end, which is better than the 47.5 figure that was recorded in April.

Despite the contraction, experts expect that as more of the measures that were imposed to help contain the coronavirus’ spread are rolled back and new infection numbers drop, the PMI will continue to rise. And as demand escalates, shareholders of extraction companies such as Southern Copper Corporation (NYSE: SCCO) can look forward to better returns on their investments.

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