May 28

Trafigura Sees Copper Surging to $12,000/t Amid Energy Transition

Editorial Staff
Mar 28, 2023
Image: omid roshan via Unsplash

Trafigura, one of the world’s largest commodity traders, expects copper prices to rise by a third from its current levels due to a global shortage and hit $12,000 per tonne within the next 12 months. The copper market was already running on inventories that covered only 3.5 days of global consumption equivalent at the end of 2022, and shortages may continue as demand outpaces supply, according to Trafigura’s co-head for metals and minerals trading.

Besides its traditional use in cables, construction and machinery, copper is becoming more widespread as the metal of choice for the energy transition, playing a critical role in electric vehicles and renewable energy infrastructure. The increase in copper demand is driven by China, which already consumes more than half of the world’s copper output and may accelerate its economic growth after lifting coronavirus restrictions.

China is likely to install nearly three times more wind turbines and solar panels by 2030 than its current target, according to Goldman Sachs. Solar and wind capacity will reach 3,300 gigawatts by 2030, well ahead of the government’s target of 1,200 gigawatts, the bank’s analysts estimated in a recent report. This will help China’s transformation into a greener economy by reducing its reliance on the import of fossil fuels but will also put a strain on the copper supply.

China is also the world’s largest producer of electric vehicles (EVs), which deploy copper in their batteries and wiring. EVs already account for a quarter of China’s total car sales, with their share set to exceed 50% by 2030, according to ING Bank. Three of the world’s top five best-selling EV brands come from China – BYD, which already beats Tesla by sales, Wuling and GAC Motors.

The development of these new industries, along with the projected recovery of the Chinese economy, are set to increase global demand for copper. At the same time, the supply of copper remains strained as commissioning new mines from scratch is capital intensive and takes several years.

There are several new mines which are nevertheless working to bring additional volumes of copper to the market. These include Anglo American’s Quellaveco mine in Peru, Kamoa-Kakula mine in the Democratic Republic of Congo (which is backed by China’s Zijin Mining), and the Udokan mine in Russia – the latter of which is set to start production this year at one of the world’s largest untapped deposits. There are also expansion projects at existing deposits, particularly in Latin America, Mongolia and Indonesia.

Still, these developments are being offset by problems at existing mines, which affect the balance of copper supply and demand. These include the reduction of ore grades in Chile and social unrest in Peru, the two countries that are the world’s largest copper producers. There are also regulatory conflicts, such as the recent feud between Canadian miner First Quantum and the government of Panama, which wanted the company to pay higher taxes.

The European Union recently added copper to its list of strategic minerals, and the U.S. is considering doing the same. European car manufacturer Stellantis, the maker of Peugeot and Fiat, bought a stake in Argentina’s copper mine to secure supply of the metal for its EVs. China’s Zijin Mining invests in copper projects in Africa, Europe, and Latin America to secure supply of the metal.

This means Trafigura’s executives may be right in their forecast for the copper price. Goldman Sachs is even forecasting the price of $15,000 per tonne by 2025. While oil prices surged in the fossil fuel era, copper has become the new oil in terms of driving the green energy transition amid today’s focus on decarbonization. As a result, the red metal is set to surge until the balance of demand and supply restores sometime in the long term.

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