Copper: Miners have an opportunity to emerge as leaders in a critical transition

Energy transition will drive the demand for metals. The world’s shift to net zero will require more mining, not less. The rapid scaling of the low-emission of the future—solar and wind power, electric vehicles and grid-scale batteries will be highly material-intensive.

With a 127% increase in profits, miners have never been better placed to take advantage of new opportunities and ensure sustained outcomes.

ESG remains a key pressure point but also an opportunity for miners. According to PwC’s review, the top 40 mining companies’ future success will depend on whether they take a leading role in the world’s clean energy transition and continue to generate significant stakeholder value. This year’s report suggests that the rewards for those miners that emerge as leaders in the clean energy transition could be immense.

According to recent data, the need for “critical minerals” — such as copper, nickel and cobalt — is expected to grow over the next three decades, with some estimates suggesting that the annual demand from clean energy technologies will reach over $400 billion by 2050.

The stand-out feature is the rise of ESG. With environmental risks and regulations, the top industry risk, and social license to operate at number three, it is clear that executives have fully taken on board the importance of addressing climate change and the ESG agenda.

Copper Supply
World copper mine production during the year 2022 would surge by 3.9% as per ICSG. This lower growth projection for 2022 is mainly driven by market underperformance on factors like inflation, Fed rate hikes, geopolitical tensions and slowing growth from China.

The refined copper production forecast for the years 2022 & 2023 is 24.75 & 25.87 million tonnes, respectively. The expected rise is on the continued expansion of chinese electrolytic capacity.

A broader breakup of industrial metals mined in the year 2021 is highlighted below:

Copper mine output in 2022 is expected to be 21.90 million tonnes. Inventory in LME and Shanghai is depleting in short term with the markets running with inventories cover of 4.9 days of global consumption (End of year forecast is 2.7 days)

Long-term supply bottlenecks are expected to ease due to a significant pipeline of new projects which will bring additional copper to the market – particularly in Chile, Peru, Australia and Canada while also addressing key supply concerns of Latin America. Thus, Fitch Solutions revised copper prices for 2023 to $8400 from an average of $9580.

ICSG expects the global copper market to see a deficit of around 325,000 tons in 2022 and a surplus of nearly 155,000 tons in 2023.

Global macroeconomic situations are expected to take a deep toll on the demand of copper and overall base metals.

Outlook & Dynamics
Copper prices have been volatile since the beginning of the year. After hitting $10,000 per ton mark in the first quarter they have never seen those levels due to the global pressure of economic uncertainty related to inflation and weak demand from China.

The green energy transition is expected to see demand for the base metal increase, hence the long-term picture for copper is still bright. It could also lead to increased demand for recycled copper.

Underinvestment in copper projects
In the short term due to few copper projects expected to come on stream, albeit lower grades, markets are forecast to be well supplied. Since there is a lack of investment in new copper projects, the segment may enter the period of shortage at a time when the metal needs the most.

US headline inflation running at its highest and the fear set in of an imminent recession is hitting the outlook for copper, which is primarily used in construction. Recession fears hamper economic activity and demand projections for industrial inputs.

Chinese PMI data pointed to contractions in the manufacturing sector, hampered by thin power rationing and continuous pandemic-related lockdowns.

Technical price levels

Short Term (3 months)