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Copper market: Structural re-evaluation is inevitable, but macroeconomic negativity is in focus so far

12 december 2022

After reaching a new high in early March, the price for copper fell by 25% against December and is still around $8,000 per tonne. The price is supported by risks in the supply side like interruptions in copper production in Latin America. Some experts believe that copper prices may fall even lower due to the strengthening of a dollar amid the fight against inflation and a potential recession. A more particular but no less significant element of this picture is the slowdown in the China’s economy, the metal’s largest consumer, due to a policy of ‘zero tolerance’ to Covid-19. Metal producers, in turn, hope that the price will face a ‘structural re-evaluation’ (this term was used, in particular, by a Trafigura’s representative) as recession fears would subside and the acceleration of the energy transition would return to the agenda. The fact that copper is one of the main beneficiaries of this process is undeniable, but a short-term picture for copper, like other industrial metals, is fraught with negative macroeconomic factors.


Global demand for copper during the first half of 2022, according to Norilsk Nickel, was rather uneven, as high energy prices in Europe and anti-Covid restrictions in China had a negative affect both on the consumer sentiments and investments. In April and May, the demand for copper was particularly weak.

“On the supply side, Chile and Peru, the largest copper producing countries, experienced a number of incidents and production shutdowns, while the production in the rest of the world remained flat due to weak demand for blister copper in China,” says Norilsk Nickel in its press release.

Despite the fact that global copper production has been declining since the beginning of the year, according to the results of the half year, it is about 3% higher than a year ago, Concord Resources notes. By the end of the year, production is expected to be 5% higher than in 2021, and a strong increase in metal output is expected next year due to the commissioning of new projects.

According to the estimates of the International Copper Study Group (ICSG) published at the end of October, the copper market in 2022 will face a deficit of about 325 thousand tonnes. The ICSG forecast has changed dramatically and in May, the group predicted a surplus of 142 thousand tonnes this year.

“Continued COVID-19 related restrictions and workforce absenteeism, operational and geotechnical issues, strikes, water restrictions in Chile, lower than expected head grades and community actions in Peru have constrained mine output at a number of operations this year,” explains ICSG.


According to the ICSG forecasts, global production of refined copper will grow by about 2.8% in 2022 (to 25.49 mn tonnes) and by 3.3% in 2023 (to 26.34 mn tonnes). The previous forecast assumed higher growth (by 4.3% in 2022 and 3.6% in 2023) and was based on an improved coronavirus situation, the stability of existing projects, and the contribution of new capacities, in particular, in China and the Democratic Republic of Congo.

Next year, according to ICSG, the copper market will have a surplus of 155 thousand tonnes (the May forecast assumed a surplus of 352 thousand tonnes).

Global refined copper consumption will increase by about 2.2% in 2022 and 1.4% in 2023, according to ICSG. “A deterioration in the global economic outlook, mainly as a consequence of elevated energy prices and high inflation has resulted in a downward revision to refined usage growth for both 2022 and 2023,” ICSG said in its statement.


The International Wrought Copper Council (IWCC) also adjusted its copper demand forecasts in October as significant uncertainties emerged, including the energy situation in Europe, as well as fears of an economic slowdown and recession.

According to the Norilsk Nickel’s forecast, there will be a slight deficit in the copper market in 2022 in the amount of 187 thousand tonnes (less than 1% of the global consumption).

Despite recent problems and worsening forecasts for the global economy, demand for copper in 2022 will grow by 2% to 25 mn tonnes, Norilsk Nickel believes. In particular, demand in China will grow by 2% to 13.6 mn tonnes after lifting the Covid restrictions, while Europe and America will increase their copper consumption by 1% and 3%, respectively.

The global supply of both mined and refined copper will increase in 2022, Nornickel believes. Copper mining will rise 3% year-on-year to 22 mn tonnes and refined copper production will rise 2% to 25 mn tonnes as the copper production recovers from the coronavirus restrictions.

South America and Central America combined are expected to produce 2.9 mn tonnes (up 6%), Africa up 11% to 1.7 mn tonnes, and Asia up 1% to 14.7 mn tonnes, including a 2% increase to 10.5 mn tonnes in China, and a 3% increase to 1.5 mn tonnes in Japan. However, production shutdowns at several mines in Latin America caused by strikes and drought may lead to the interruptions in the supply of raw materials in 2022 reaching 5 to 5.5 percent of the total production, Nornickel notes.

IWCC expects the mining production to grow by 3.4% in 2022 to 21.6 mn tonnes, and the refined copper output by 2.5% to 24.82 mn tonnes. In 2023, according to the IWCC estimates, the refined copper production will grow by 2.5% to 25.44 mn tonnes.

Marcus Garvey, Macquarie’s Head of Metals and Bulks Commodity Strategy, expects a copper market surplus of 600 thousand tonnes in 2023 amid the rising supplies from Latin America and other countries. Speaking on the impact of the global macroeconomic downturn, he believes that all industrial metals will go into surplus next year.


Exchange-traded copper inventories remain at their historically low levels, Trafigura warned at the end of October; they are sufficient to ensure the global consumption for just 4.9 days, and they will be for 2.7 days by the end of the year. Usually, this indicator is in weeks. And while the public data on the inventories at the LME and other trading venues does not show a real and complete picture of the state of the supply chain, the limited inventories increase the risk of a price spike if traders seek to secure future supplies.

However, the LME’s 3-month copper futures were traded at the end of November with a more than 25% discount off the record $10,845 a tonne achieved in March. According to Richard Adkerson, CEO of Freeport-McMoRan, low prices do not reflect the limited physical market.

Pressure on copper prices due to rising operating costs is exerted by a stronger dollar due to rising interest rates in the United States driven by the highest inflation rate in 40 years, says Duncan Hobbs, Research Director at Concord Resources.

Another macroeconomic factor affecting copper is the energy crisis in Europe. Rising energy prices and the expectation of a cold winter due to the consequences of the Russian-Ukrainian conflict raise the risks of a potential recession. “We’re now seeing European governments shaping up to provide some sort of support to consumers and industry, formulating a substantial fiscal policy response,” Hobbs says.

While these factors may affect the copper consumption in Europe, a more significant development for the copper market is the new Covid-19 wave in China, the largest consumer of copper. Measures to contain the spread of the virus in the second quarter slowed the market recovery that began earlier this year, Hobbs says. This resulted in a China’s demand slowdown.

Refinitiv’s Karen Norton doesn’t expect Chinese demand to pick up much in the last quarter. “The new energy sector is a bright spot, but accounts for a much smaller proportion of demand than the real estate sector, which remains weak and an area of continued concern,” she said. As a result, copper prices may continue to decline amid pessimistic expectations for demand this year and growing fears of a recession and measures to combat the galloping inflation, according to Norton.

Growth prospects for next year also look bleak, especially in Europe, Norton says. “The energy crisis is threatening to push back the energy transition, which inevitably would be expected to have a knock-on effect for demand for key metals such as copper,” says Norton.

At the same time, representatives of mining companies draw attention to the fact that the copper market sentiment does not reflect the real situation regarding the metal availability and does not take into account the future demand development. This opinion is shared, for example, by Jonathan Price, CEO of the Canadian Teck Resources company, who believes that the big picture - macro view - does not completely relate to the basic physical principles of the copper market.

“While there is so much attention being paid to the weakness in the real estate sector in China, quietly, the demand for infrastructure, electric vehicle-related copper demand, more than makes up for it,” Bintas explained,” says Kostas Bintas, Co-Head of Metals and Minerals Trading at Trafigura.

Bintas specifically addresses the situation in Europe that is accelerating the transition to renewable energy in an attempt to phase out Russian gas, which results in an increase in demand for copper. “It is not accidental that the EU has decided to bring forward the target of doubling its solar capacity from 2030 to 2025. All that requires a lot of copper,” he says. “Look at electric vehicles everywhere, [the numbers on the road] are surprising to the upside. That’s a lot of copper too. As a result, we’ve been drawing down stocks throughout this very difficult year,” says Bintas.

Difficulties in supplying the metal could support the prices for metal. This year, copper mining in Chile and Peru, the largest producers, has run into difficulties due to the threat of miners’ strikes (Escondida and Antofagasta in Chile) and community protests that blocked the work of Glencore (Antapaccay), MMG (Las Bambas), and Hudbay Minerals (Constancia). However, this support has not yet come. “Despite the ongoing supply disruptions, concerns over macro headwinds and recession fears are dominating copper’s sentiment and prices for now,” said ING’s Ewa Manthey.

Persistent supply issues in Latin America will prevent prices falling much further, and we expect copper to remain elevated by historical standards, averaging around $7,500/tonne over Q422 (fourth quarter),” research agency Fitch Solutions says.

For 2023, Fitch Solutions’ analysts projected copper price at $8,400. “[We are] forecasting a slight production surplus in 2022, though the market will tip back into deficit in 2023 with demand increasing. The deficit will grow out towards the middle of the decade as demand accelerates, mainly driven by consumption related to the green transition,” they say.

Norilsk Nickel also believes that in the long term, the accelerating electrification of transport vehicles and the increased use of environmentally cleaner production technologies will stimulate the demand for the metal.


According to the International Copper Study Group, electric vehicles use about four times as much copper as internal-combustion engine vehicles. A conventional car uses about 23 kg of copper, a battery electric vehicle (BEV) uses up to 83 kg, and battery-powered electric motor buses consume between 224 kg and 369 kg. In addition, copper is used in electric vehicle charging stations and energy storage systems.

The use of metals in electric vehicles:


Source: IEA Report “The Role of Critical Minerals in Clean Energy Transitions”, October 2022.

According to the S&P Global analysts, from today to 2035, reaching the net zero target by 2050 will result in copper demand growing by more than 82% between 2021 and 2035. This growth is driven mainly by the necessary shift to environmentally friendly vehicles and the electrification of the economy.

Demand for copper for ‘green’ energy will increase by more than 3 mn tonnes annually within a decade, according to IEA.

“We continue to believe that significant investments in new copper projects will be required to meet growing demand for infrastructure investments and the transition to a low-carbon economy,” Norilsk Nickel said in a press release.

The IEA estimates that coordinated efforts to achieve the goals of the Paris Agreement on climate stabilization will lead to a fourfold increase in demand for minerals required for clean energy technologies by 2040. In particular, the expansion of electrical grids means that the demand for copper used for them more than double during this period. Copper and aluminum are the cornerstones for all electrical-related technologies.

The growing demand for metals for clean energy technologies:


Source: IEA Report “The Role of Critical Minerals in Clean Energy Transitions”, October 2022.

The power-generating sector that formed a small part of the total demand for most minerals until the mid-2010s will become the fastest growing segment of demand as the transformation deepens in this area. In a scenario that is consistent with the goals set in the Paris Agreement, the share of clean energy technologies in the total demand for copper will increase by more than 40%, according to IEA.


According to market participants, while copper looks vulnerable in the short term, there is a shortage of supply in the longer term.

IEA warns that the current supply of minerals and investments for new projects fall short of what is needed to transform the energy sector, raising the risk of a delayed or more expensive transition to energy. As for copper, the expected supply from existing mines and projects under construction is estimated to meet only 80% of the projected demand for this metal by 2030. Limited supply will push prices up, which could have a major impact on the level of investment in the electric energy system, with copper and aluminum currently accounting for about 20% of the total power grid costs.

While there are several metal mining projects in various stages of their development around the world, there are many vulnerabilities that enhance the likelihood of market shortages and higher price volatility, IEA notes. With regard to copper, this means a drop in the quality of world reserves as the average grade of copper in the Chile’s ore has decreased by 30% over the past 15 years. Extracting metal from a lower grade ore requires more energy, putting higher pressure on the production costs, causes greenhouse gas emissions and increases wastes. In addition, more than 50% of the current lithium and copper production is historically concentrated in the regions of extreme heat or floods, which makes big problems in securing a reliable and sustainable supply, according to the IEA study. On average, it takes 16 years to launch a new mine now.

The current price levels are insufficient for the development of new projects, says Freeport-McMoRan.


Source: Freeport-McMoRan Third-Quarter and Nine-Month 2022 Results.

“This current economic turmoil is only making the problem worse,” says the CEO of this company, Richard Adkerson. “Companies are reluctant to invest in today’s world.”


Weak copper prices between 2012 and 2020 have led to a severe underinvestment in new mines, says ERG Senior Market Analyst Piotr Ortonowski. As the quality of existing mines declines, the development of new projects is becoming increasingly difficult even in traditional mining jurisdictions like Chile or Peru, serious obstacles are encountered due to tightening legislation, water shortages and fierce social opposition, he laments.

We have moved into a landscape of accelerated copper demand growth, underpinned by the green energy transition… The use of copper to electrify the world will become essential... the base metal is bound to be a winner of the green energy transition,” says Ortonowski. He estimates that in 10 years’ time, 7.6 mn to 11.3 mn tonnes of new mine capacity will be required to fill the supply gap, but mining companies have been extremely sluggish in responding to this challenge - the recent drop in prices won’t help.

Lack of investment in new copper projects could cause the sector to enter a period of shortage just when the metal is needed most. S&P Global describes a scenario when the production largely remains at current levels, and in this case, the annual copper supply shortage will reach almost 10 mn tonnes by 2035. In a more optimistic scenario when mines increase the utilization and ramp up processing, the market will continue to be in short supply for most of the next decade.

According to Wood Mackenzie, 9.7 mn tonnes of copper from unconfirmed projects will be needed over a 10-year period if the industry is to meet Paris climate targets, equivalent to nearly a third of current refined copper consumption.

According to Graeme Train, Head of Metals Research at Trafigura, this is a sector that needs constant investment and the pace of that investment needs to be accelerated fairly quickly. The company estimates that an average copper mining project currently generates about 30% less, it takes about three and a half years longer to bring it to the market, it is about 40% more expensive in terms of capital costs, and about 25% more expensive in terms of operational costs.

According to IEA, the metal recycling that reduces the burden on primary supply has little effect on the situation yet and does not remove the need for regular investments in mining capacities, at least, until there are significant wastes from clean energy technologies (such as batteries and wind turbines). However, by 2040, recycled amounts of copper, lithium, nickel and cobalt from used batteries could reduce the required combined primary supplies of these metals by about 10 percent.

Igor Leikin for Rough&Polished