Goldman Sachs: Copper Supply Squeeze Equals Higher Prices

Goldman Sachs metals strategist Nick Snowdon believes that copper prices will rise to US$15,000/ton – and this could be a conservative estimate. He appeared on Bloomberg’s “Odd Lots” podcast and spoke of the impending copper squeeze. Here are some insights from that timely conversation that are aligned with our view of copper as a green energy strategic metal of the future.

Copper is an underappreciated strategic metal. It is the only metal that conducts electricity at the rate required for modern uses. Aluminum is a good conductor as well, but it cannot be used efficiently in small spaces like copper can.

Supply Constraints

Supply in the near term is being driven by spot price fundamentals. There has been a brief reduction from China’s Shanghai COVID lockdowns, and more supply coming than anticipated coming from Russia. There is an issue with the onset of peak copper supply in 2 years, with a lack of growth on the supply side. In 2022, there is 24 million tons of production per year with most of the construction going into traditional industries like construction, automotive and grid infrastructure etc. There is about 1.5 million tons currently used in green initiatives. This will double to $3 million tons in 2025 and increase to $7 million tons or 20% of all copper output by 2030. This rapid growth in green infrastructure must be met with an increase in production – however there hasn’t been a new mine approval anywhere in the world in the last 2 years.

Global Copper Inventories

The Gun-Shy Mining Industry

Miners are apprehensive about increasing production, as there was an overbuild that drastically affected operations during the last boom in cooper prices in 2008 to 2009. The introduction of ESG principles is also hurting the industry – obviously miners are not screening well from an ESG context. Hurdles to receiving permits have increased, and renewed environmental concerns in mining jurisdictions (e.g., Chile) have slowed down the process.

Mining isn’t Considered Cool Anymore

An overlooked issue is the shortage of workers. New engineers aren’t entering the mining industry at the rate they have in the past. In general young people aren’t going into resource extraction businesses. They are entering technology and other industries, limiting the pace a company can enter new projects.  At the same time, overall capital costs for mining are escalating – machinery, labor and fuel are all rising. This structural imbalance will inevitably lead to higher copper prices.

We Hate to Say, “We Told You So”

We identified copper as a key energy metal, with the anticipation of global copper demand rising by 16% by 2030 due to its need for growth in green technologies. The potential for copper to have a supply tightening scenario like lithium is very high in the next 2 years.