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World copper deficit could hit record; demand seen doubling by 2035: S&P Global

Highlights

Demand shortfall could reach 9.9 million mt by 2035

Energy transition applications are seen boosting copper demand

Global copper market supply could fall far short of historic levels of demand by 2035 and the severity of the deficit will largely depend on the industry's ability to expand capacity as energy transition-related applications are expected to boost overall copper demand to about 50 million mt in that time frame from the current 25 million mt, an S&P Global report said July 14.

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"We have two scenarios, one being the 'rocky-road' scenario, which is business-as-usual with a continuation of current trends where we are," S&P Global Vice Chairman Daniel Yergin said during a virtual panel discussion the company hosted, "but then we have the 'high-ambition' scenario, in which everything goes right, and we are at the very outer bounds of what is realistic in terms of supply growth."

The discussion was held in conjunction with the release of a comprehensive copper market report S&P Global released July 14 through a collaboration among its Commodity Insights, Market Intelligence, and Mobility divisions.

According to the report, the copper market in 2035 could see a deficit of up to about 1.5 million mt in the high-ambition supply scenario and up to a 9.9 million mt deficit in the rocky-road supply scenario.

Either could lead to a historic copper deficit. The largest recorded copper deficit currently stands at just below 1 million mt in 2014, according to John Mothersole, director of nonferrous metals economics & country risk for Market Intelligence.

Yergin said the timing of energy transition developments and changes to copper mining technology could play critical roles in determining where the copper deficit ultimately falls by 2035, but supply-demand gaps eventually "get closed one way or another."

Demand for copper in energy transition applications is expected to climb about 8.2% over the next decade, outstripping a projected 2.9% increase in copper demand in that period for traditional uses such as construction, infrastructure, machinery, and transportation, said Mohsen Bonakdarpour, executive director of economics & country risk for Market Intelligence.

Bonakdarpour added that growing demand will follow an accelerated pace until 2035 and then slow down as industries begin to meet their milestones toward their net-zero carbon emissions targets in 2050.

"Over the next 28 years, the pattern of growth is not expected to continue on the extreme escalation because, by 2035, a lot of the [vehicle] fleets will be going to [electric vehicles] and therefore that begins to slow down [demand] in the years after 2035," he said.

Energy transition demand

S&P Global's demand analysis in the report was largely based on calculations determining how much copper will be required to achieve net-zero carbon targets by 2050 in line with energy transition goals, said Olivier Beaufils, director of energy transition consulting at Commodity Insights.

"The energy transition copper demand is projected to be about two-and-a-half times higher by 2035, resulting in about a 13 million mt/year increase in demand that is largely driven by electric vehicles, which consume two-and-a-half times more copper per car than a conventional combustion engine vehicle," Beaufils said, adding that copper content increases more drastically in the electrified versions of larger vehicles, such as trucks.

"That's followed by the transmission and distribution network, which increases [copper demand] and is the backbone of the electrification of the economy and is critical to achieving that transition to electric vehicles, but also integrate all of the power generation and the renewables that are coming online," he added.

For renewable power generation, Beaufils said an offshore wind farm uses about 5 mt of copper per MW, about five times more than a conventional power plant, and solar facilities utilize 2.3 mt of copper per MW, twice as much as conventional generation.

Supply challenges

Mothersole said copper supply will be up against an unprecedented surge in consumption through 2050.

"If we are to meet energy transition targets, the amount of copper that's going to be used over the next 28 years is going to exceed all of the cumulative copper consumption that the world has seen since 1900," he said.

Even under the report's conservative rocky road supply scenario, Mothersole said the copper mining industry is expected to increase supply as it rebounds from recent challenges related to the coronavirus pandemic and global logistics disruptions.

But the copper mining industry would be "really put to the test" to achieve supply levels outlined by S&P Global's more optimistic high-ambition framework.

"In the scenario, we have mine capacity utilization rates in the mid-90 percentiles, matching some of the peak performance years that we've seen historically," he said. "Also, the recycle rate gradually increases both because of higher prices and incentive to return that used material back to the market, but also because of government policy to encourage that recycling."

Keerti Rajan, Market Intelligence's consulting director of economics & country risk, said the ability of copper miners to meet supply targets will be significantly influenced by several constraints and standards related to environmental regulations, permitting, social license, political relations, infrastructure, and labor. Miners, however, can overcome these challenges with innovation, he added.

"It's very important to note that innovation not just makes utilization better and improves efficiency both on the demand and supply side but could also help with some of that social license because it could reduce the environment impacts of some of these mines and help convince local stakeholders that they're worthwhile for the energy transition in the long run," he said.

Copper prices slide

Though copper demand is expected to rise exponentially in the coming years, US Midwest copper prices have been on the decline in recent weeks, falling nearly 30% since early June, according to S&P Global Commodity Insights pricing data. US factory orders and output remain strong, but many US mill fabricators and dealers are worried about a looming recession, putting pressure on prices

The Platts copper transaction price assessment stood at 333 cents/lb delivered Midwest on July 14, its lowest level since November 2020, according to data from S&P Global.

COMEX copper scrap futures have also seen a sharp drop in the past month. After testing the 460 cents/lb level June 3, COMEX copper for September delivery has seen a similar 30% decline to 321 cents/lb as of July 14.