The new price surge should cause pain

Experts are sounding the alarm over an “extreme” shortage on the horizon that could send prices skyrocketing for dozens of essentials.

An ‘extreme’ shortage of copper over the next decade could push the price of the crucial raw material up to US$100,000 ($140,000) a tonne as supplies ‘run out’, warned a expert.

According to Goldman Sachs metals strategist Nicholas Snowdon, the impending supply shock is fueled by growing demand for electric vehicles (EVs) and other “green” technologies, coupled with chronic underinvestment and lack of resources. expertise needed to build new copper mines.

Talk with Bloomberg’s odd lots podcast On Wednesday, Snowdon predicted that copper could rise from its current price of around US$9,300 ($13,000) a tonne to US$15,000 ($20,000), and “we’re not ruling out [that] copper could be a US$50,000 ($70,000) commodity, could be a US$100,000 ($140,000) commodity.”

Mr. Snowdon explained that such an unprecedented level was due to the fact that, unlike energy and agricultural products such as oil or wheat, the price of copper represented only a very small part of the cost of the final product.

“So for the price of copper to drive demand destruction in cars, in electronics, you’re going to have to see a massive, outsized movement in the price of copper to get the necessary increase in the cost of the total good to lead to this destruction of demand,” he said.

“The problem with the copper market is that we have never been in such an extreme set of fundamental circumstances. We never had to end demand destruction pricing to achieve rebalancing.

Copper is the third most widely used metal in the world, with a global demand of around 25 million tonnes per year.

Chile is the largest producer, accounting for more than a third of the world’s copper, followed by China, Peru, the United States, Australia, Indonesia, Zambia, Canada and the Poland.

Currently, “non-green” demand such as electronics, building wiring and other infrastructure accounts for more than 90% of that demand, Snowdon said.

“Green” demand from electric vehicles, charging infrastructure and the renewable energy sector was only around 1.5 million tonnes today, but is expected to rise sharply to between six and seven million tonnes by the end of the decade, largely driven by China.

“When we look at the outlook for the copper market over the next three, five, 10 years, we basically see incredibly large deficits developing over that time,” he said.

“By the middle of this decade, we expect the biggest deficit ever in the copper market. This market has such severe imbalances that they cannot be resolved at current price levels.

“This is the crux of the problem in the copper market. It’s just an incredibly tight future. At today’s price, there is no fundamental adjustment underway that can meaningfully resolve what lies ahead.

The problem, according to Snowdon, was that unlike in the early 2000s during the last bull market, companies were not meeting growing demand with new mines.

“Over the past two years, even though copper [price] doubled, there hasn’t been a single new copper mine approved,” he said.

He blamed “conservatism” after the mining industry faced a “near death experience in 2013 and 2014” due to overbuilding in the mid to late 2000s, as well as environmental influence, Social and Governance (ESG) on investment decisions.

“Less capital has flowed into the commodities sectors because it hasn’t passed the ESG filter well,” he said.

And even if companies want to build new mines, increasing regulatory hurdles and a lack of industry expertise meant further delays.

In Chile, for example, getting the right permits can take up to three years before even clearing the way, triple the time it took 20 years ago.

He said all of these factors are fueling a broader talent shortage in the mining sector.

“There are literally a handful of recognized teams around the world that are good at building and increasing production in copper mines,” Mr Snowdon said.

“Even if you decide today we’re going to spend billions on a new copper mine, you’re still going to have a hard time finding the engineering team to support that… [and] you’re going to have to pay top dollar.

Asked whether companies such as Tesla, which have already signed agreements to source nickel from specific suppliers, could start investing in copper mining, Mr Snowdon said it was “perfectly possible ” but that the problem was not “in the foreground”.

“Two, three years from now, since things are going to get tough, we’ll be hearing very, very similar conversations about copper,” he said.

“Now it is absolutely too late. These conversations need to happen today. If miners aren’t willing to start investing, then it should be those major downstream consumers who are pushing this. But that will probably come too late, and as a result, prices will go absolutely ballistic. »

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