Copper Supply, Demand Imbalance Will Worsen
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Copper Supply, Demand Imbalance Will Worsen

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Paloma Duran By Paloma Duran | Journalist and Industry Analyst - Wed, 11/02/2022 - 06:40

Experts have warned that the mining sector will not be able to supply the copper required to meet key environmental targets. In addition, experts argue that the scenario is unlikely to improve, since the sector would need to invest and create new projects like never before.

Wood Mackenzie reported that 9.7 million tons of new copper supply are needed in the next decade to meet the goals of the Paris Climate Agreement. However, it is unlikely that the goals will be met, since most of the projects considered have not attracted the required investment, have not been approved by companies' boards or have not received approved permits from the government and environmental institutions. The firm said that to meet the projected demand, the industry would need to increase production by a third of the current refined consumption or put into production each year a new La Escondida project, which is the largest copper mine to date.

Wood Mackenzie said demand for copper will continue to rise due to growing production of electric vehicles and renewable energy generation. The company also noted that while copper prices and demand have increased exponentially, project approvals have not. In 1H22, copper projects only reached an average annual production of 260,000 tons per year.

The company estimated that an investment of around US$23 billion per year will be needed over the next 30 years to have the copper necessary to meet the goals of the Paris Agreement. Experts argued that this will be difficult to achieve as this level of investment has only been seen during China's commodity super cycle between 2012 and 2016.

“Copper’s critical role in the energy transition is undisputed. To successfully meet zero-carbon targets, the mining industry needs to deliver new projects at a frequency and consistent level of financing never previously accomplished,” Nick Pickens, Research Director of Copper Markets, Wood Mackenzie.  

In 2022, the price of copper has fallen since reaching its all-time high in March. Fitch expects prices to average US$8,400/t in 2023 and US$11,500/t in 2031. In addition, Fitch Solutions Country Risk and Industry Research also warned that the problem of the imbalance between supply and demand would become more acute. Acuity Knowledge Partners has forecast a widening gap between supply and demand that could reach 8.2 million tons by 2030, Kitco reports.

“While we believe the demand side remains extremely bright, we continue to think the next leg of the bull market will come once investors realize the widespread supply challenges ahead," said a Goehring & Rozencwajg Associates report.

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