Electricity needs, war and long lead times will worsen copper deficit

Copper producers and investors raised concerns about growing electricity use, wartime commodity demand and ongoing headwinds to production growth during the Rule Symposium on Natural Resource Investing on July 7–11 in Boca Raton, Fla.

Global refined copper demand is forecast to increase in the coming years, growing 14.2% from a projected 26.9 million metric tons in 2024 to 30.7 MMt in 2028, according to S&P Global Market Intelligence data. Refined copper deficits over the same period are expected to be more than 20 times larger, ballooning to 576,000 metric tons from 24,000 metric tons. Overall supply shortfalls could reach 1.6 MMt by 2035, according to a more optimistic scenario in S&P Global's 2022 "Future of Copper" report.

"The only thing that will limit demand is price," Robert Friedland, founder and executive co-chairman of diversified miner Ivanhoe Mines Ltd. and executive chairman of Ivanhoe Electric Inc., said during an interview shown July 11 at the conference. "Eventually, it will get so expensive that there'll have to be some form of either cutback in consumption or [turn to] alternative materials."

Everything's coming up energy

An expected surge in global electricity demand, linked to improving global electricity access and the expansion of datacenters and AI, will be a key driver of copper demand for electronics and electricity transmission, experts said.

"In India, in China, in Africa, and in Latin America and the developing world, air-conditioning demand alone requires astronomic amounts of copper in the air conditioner itself, but to generate the electrical energy and transmit it to that air conditioner, you also need copper metal," Friedland said, using A/C access as an example of improved living conditions driving copper demand. "If we could grow the world economy at 3% a year [for the] next 20 years ... we would have to mine more copper in the next 20 years than humanity has mined in all of human history."

While some industry observers have said predictions of an AI-driven copper boom are overblown, experts at the event indicated that datacenters and supporting infrastructure will still be a key component of copper demand, particularly in the near term.

"What's startling for me is the sudden pickup in investment in transmission and distribution infrastructure as people start to realize that our energy grids are not able to take the sudden surge in demand that is occurring in electricity," Hayden Locke, president and CEO of Marimaca Copper Corp., said during a July 10 presentation. "It is a ridiculous amount of demand that is coming over the next 20 years."

Wartime rush

Industry participants have been sounding the alarm over forecasts of energy-driven copper supply shortfalls before now, but efforts linked to the Russia-Ukraine war and other conflicts are throwing a new wrench into global copper markets, Friedland said.

"Historically, conflict has always led to astronomic increases in the copper price," Friedland said. "In World War I and II, copper prices went crazy ... so did molybdenum and other metals required for national defense."

The use of modern weapons — some of which utilize AI — in today's conflicts means copper needs for military applications are going beyond simple electronics uses and extending to datacenters, similar to the broader consumer market.

"Modern warfare is extremely copper intensive ... [and] drone warfare, modern warfare as is being practiced in the Ukrainian battlefield, is all dependent on AI," Friedland said. "Military necessity for these metals puts an infinite value on it for national security."

Obstacles to expansion

Despite growing awareness of projected copper shortfalls, event speakers said a variety of headwinds at all stages of a mine's life are preventing a faster buildout of copper supplies.

At the very top of the copper supply chain, for example, deposit discoveries have been taking a hit.

"The discovery rate is falling for a number of reasons, I think: Exploration budgets aren't big enough anymore, and time to production has increased because it takes so much time now to actually define your deposit, go through the permitting process, etc.," Brent Cook, founder and senior advisor at mining analysis service Exploration Insights, said during a July 10 presentation.

Global copper exploration expenditures have rebounded since hitting a 15-year low of $1.58 billion in 2016, growing 97.7% to $3.12 billion in 2023, but exploration spending remains below the 15-year high of $4.70 billion in 2012, according to Market Intelligence data.

Even when deposits are found or if a miner decides to continue backing a project, low ore grades may hamper output.

"The grade profile of all the oncoming supply [is] 0.4%, 0.5%," Christian Easterday, managing director and CEO of Hot Chili Ltd., said during a July 9 event talk. "This is the new normal coming for the industry ... this is going to be something that is going to be part of that inelasticity in supply response to this coming cycle."

For projects that do get a miner's go-ahead, they still must proceed through an onerous permitting process, speakers said.

"Permitting is absolutely key; it's what's holding back new mine developments around the world," Easterday said during a July 11 presentation.

Copper prices will need to reach new heights to incentivize projects to proceed through the obstacles and bring new supplies online, multiple speakers said.

Although the London Metal Exchange (LME) grade A cash copper price is no longer at its five-year high of $11,299.50 per metric ton, achieved Oct. 18, 2021, it did reach its second-highest five-year value of $10,800.81/t on May 20, according to Market Intelligence data. S&P Global Commodity Insights' Metals & Mining Research team has forecast the LME copper cash price at $10,300/t in 2028.

"What we know from history is, when the demand cycle meets this inelastic supply, the [price] move can be very, very significant and very, very fast," Marimaca's Locke said. "There are very few new copper projects that can be brought into production without a significantly higher copper price."