Analysts increasingly bullish on copper; Goldman projects $15,000/t in 2025

Analysts are increasingly bullish on copper in the short and long term amid economic recovery from the COVID-19 pandemic and broader concerns over tight supply and burgeoning demand as countries push to electrify.

Among the more bullish firms, Goldman Sachs shifted its copper outlook in an April 13 research report, projecting a 2025 copper price of $15,000 per tonne, or $6.80 per pound, up from a prior price forecast under $10,000/t. The commodities research team's latest copper price forecasts are $9,675/t in 2021, $11,875/t in 2022, $12,000/t in 2023 and $14,000/t in 2024.

Goldman Sachs' growing bullishness mirrored thinking by other base metal analysts who pointed to a looming gap in supply along with rosy demand backed by expectations for increasing use of electric cars and greener energy.

"The lack of supply, and timing of supply, is really going to contribute to this run up in copper," Cormark Securities analyst Stefan Ioannou told S&P Global Market Intelligence. "And then on top of that, you have the whole green energy/demand side of the equation."

While Ioannou took a more cautious view of copper prices in the long term, Goldman Sachs' move did not come as a surprise to him. "It's amazing how quickly in the last year the narrative has ramped up," Ioannou said. "I think most analysts have a three in front of their long-term price per pound. But if you ask any of us, the idea of $4/lb or $5/lb copper, long term, is not a crazy number by any means."

The Goldman Sachs analysts and others expect the copper market to become increasingly tight, with demand for copper-intensive items such as electric cars and wind turbines growing, while supply starts to falter, especially mid-decade. "At the core of copper's carbonomics is the need for the world to shift away from a production system based on the chemical energy of hydrocarbons (oil and gas), to one based on a range of sustainable sources — electromagnetic (solar), kinetic (wind) and geothermal," the analysts wrote April 13.

The copper market is not ready for the surge in demand, with balance between supply and demand already tight as countries emerge from the pandemic and economic growth returns, the analysts said. Meanwhile, copper miners appear reticent to fund new projects, fearing expensive capital expenditure mistakes and showing an unwillingness to siphon money away from shareholder returns.

"The mining sector remains wary of a pivot towards growth after the price collapse in the mid-2010s severely punished any front-footed producers," the Goldman Sachs analysts wrote. "Even as copper prices have rallied 80% over the last 12 months, there have been no material greenfield project approvals."

Ioannou took a similar view of development projects, saying it is unlikely there will be any surprise additions to the construction pipeline within the next five years or so, given the long-lead times required to permit and build large mines. At the same time, he noted many projects need copper prices consistently exceeding $3/lb to be economic.

"When you look at the next generation of new projects ... there's probably about 15 big projects out there that you can hang your hat on," Ioannou said. "But most of them, if not all of them, require $3.25/lb-$3.50/lb copper minimum just to incentivize development."

Looking out to 2030, Goldman Sachs forecast a supply gap of 8.2 million tonnes, or about double a prior gap that buoyed copper markets in the early 2000s.

Scotiabank analysts took a similar view in an April 12 research note, pointing to stimulus spending as a tailwind for copper in the next couple of years and forecasting hefty structural deficits in the market by 2024-2025.

"In our view, the industry will require a massive re-investment in new capacity to meet the supply challenges expected to arrive by the middle of the decade as depletions and grade declines at the world's existing production base materially erodes output, driving enormous projected deficits beginning in 2025," the Scotiabank analysts said.

Scotiabank boosted its copper price forecasts for the coming years, projecting prices of $3.80/lb in 2021, $4.00/lb in 2022, $4.00/lb in 2023, $4.25/lb in 2024 and $4.50/lb in 2025.

"While the near-term outlook remains uncertain, we anticipate copper being among the biggest beneficiaries of the likely inevitable future demand recovery. Moreover, with visible inventories already at relatively low levels and the market expected to post a meaningful deficit in 2021, followed by a large looming projected structural deficit in the medium to long-term, the copper market appears poised for another great cycle in the years ahead," the Scotiabank analysts said.

In a similar vein, Market Intelligence analysts recently projected a bullish future for copper, pointing to a mid-decade scenario with demand outstripping supply. "Strong Chinese demand growth, the rising global green agenda and lagging supply are expected to deepen the copper market deficit in 2024-25, lifting the [three-month benchmark] price to $7,570/t in 2025," they said in a March 12 report.