Predicted turning point
The International Copper Study Group (ICSG) is located in the centre of Lisbon. Twice a year, the organisation founded on the initiative of the United Nations (UN) in 1992 invites government and industry representatives and market players to the Portuguese metropolis. Alongside discussions about the situation on the global copper market, the ICSG utilises this opportunity to update its outlook, with a statistics committee scrutinising supply and demand closely. Following the meeting in early 2024, the ICSG has presented its latest forecast. In it the experts stand by their assessment that the global copper market will experience something of a turning point in 2024: after years of significant shortage, the supply of copper is set to exceed demand. The ICSG anticipates that 162,000 tonnes more of the most important industrial metal will be available than is needed.
Supply: various problems
This assessment did not calm the mood on futures markets, with copper actually continuing the rally that started back in February. At the end of May, the futures contract traded on the London Metal Exchange (LME) climbed above the USD 11,000 barrier for the first time. While the contract with a three-month term has since undergone a correction, a tonne of copper still costs nearly a fifth more than it did at the end of 2023. Where has this sudden price rise come from? One of the central drivers of the rally is the fear of a medium-term scarcity of the metal. Arguments for such a scenario come from both the supply and the demand side. The mining sector – most copper ore comes from Latin America – is being held back by a number of factors, with some mines having problems getting operations up and running. At the same time, there are delays in the development of new mining projects.
Demand: additional drivers
The Cobre Panamá mine suspended operations last autumn when, following many protests, Panama’s supreme court declared a mining law to be unconstitutional. This led to the operator, First Quantum, losing the concession to run the largest open pit mine in Central America. According to the ICSG’s figures, this site accounted for almost 1.7% of global copper production before its closure. The problems faced by mining companies come at a time of structural growth in demand for copper. The red metal has always been indispensable in construction, automotive manufacturing and electrical engineering thanks to its particular properties such as formability, resistance to corrosion and conductivity. More recent drivers have appeared in the shape of e-mobility, renewable energies and medical technology. To give an example, 3.6 times as much copper is found in a battery-operated electric car than in a conventional combustion vehicle.
Bullish scenario
Despite the factors outlined above, the latest rally in the price of copper may have gone a little too far. This is all the more true given that the high prices are already having an impact on demand. In China, the main buyer country, companies are said to have held back on copper purchases recently. What is known is that the global market was well supplied in the first quarter of 2024, the ICSG reporting worldwide copper demand of nearly 6.5 million tonnes. This compared with a supply level 287,000 tonnes higher. In the view of J.P. Morgan analysts, that will not be the end of the story. They have been looking closely at the risk of a long-term shortage for months now. The US big bank anticipates a structural deficit for the years ahead. Nevertheless, the latest correction did not come as a surprise to the experts. It was “very healthy” and could reignite demand from China. At the same time, J.P. Morgan called the setback, which it expected and has now materialised, the “foundation for a further price hike.” Specifically, the analysts see copper finishing the year above the USD 10,000 mark again. They expect an average price of USD 11,050 for 2025.