The world risks “running out of copper” amid growing demand for the metal, paving the way for a spike in prices just as the global economic reopening gets under way, according to commodity strategists at Bank of America.
Inventories, measured in metric tons, now stand at levels seen 15 years ago, “implying that stocks cover just 3.3 weeks of demand,” the strategists said in a BofA Global Research note dated April 30. The bank’s strategists said prices could jump to $13,000 a metric ton (or $5.89 a pound) in the coming months and are forecasting copper market deficits amid further drops in inventory this year and in 2022.
“The fundamental backdrop is so concerning because the global economy is just now starting to open up and reflate,” they said. “If scrap supply doesn’t come through, stocks would deplete by 2024.”
Copper prices have rallied this year as demand for the metal, which is used in the production of electric vehicles, is expected to rise partly on the global push for a green economy. Marko Papic, chief strategist at alternative investment firm Clocktower Group, likens the push to a “space race.”
“Everyone is running very fast toward an EV future,” Papic said in a phone interview Monday. “Copper is needed everywhere. It conducts electricity.”
Copper traded on the Comex saw July contract prices rise nearly 1.4% Monday to $4.53 a pound, the highest settlement since February 2011, according to FactSet data.
The BofA strategists said copper faces “even more violent price swings” should scrap metal usage by refiners and smelters fail to increase as predicted and inventories deplete in the next three years. Under that scenario, the “red metal” could soar above $20,000 a metric ton, or $9.07 a pound, according to their note.
Meanwhile, President Joe Biden’s infrastructure plan, which still needs to pass through Congress, could increase copper and steel demand as the economy reopens, MarketWatch reported last month.
Expected U.S. growth this year means China is no longer the world’s sole source of strong demand for copper, according to Papic.
“Copper is no longer tied to the hip of China,” he said. “China isn’t the only game in town anymore when it comes to global growth.”
Concerns over low copper inventories will lead to an increase in capital expenditure in mining, according to Papic. “Since 2011, there’s just been a complete collapse in capex,” he said. “We need to invest more into supply.”
Africa is one region with a lot of copper, according to Papic, who predicts geopolitical tensions could emerge over metals needed for the “green revolution.” Those include nickel and cobalt, he said. While the U.S. has its own supply of copper, Papic explained that it’s cheaper to import.
While copper is important to the decarbonization effort, the metal constitutes “a relatively small share” in the global economy, according to the BofA note.
“This has raised expectations that, from a macro perspective, copper quotations could increase, without necessarily impeding global economic growth,” the BofA strategists said.