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Energy transition to boost demand for copper, nickel over next decade: Macquarie

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Energy transition to boost demand for copper, nickel over next decade: Macquarie

Highlights

Forecast structural deficit of 579,000 mt in copper by 2026

Nickel to move into surplus in next few years

Increased supply from Indonesia to overshadow nickel demand

The energy transition is due to have a dramatic structural impact on a number of metals markets, especially copper and nickel, in the next five to 10 years, Macquarie analysts said at an Oct. 7 metals media briefing.

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Alice Fox, Macquarie associate director, commodities strategy, told the briefing that global copper demand was expected to grow at a compounded annual growth rate of 2.4% from 2019 to 2026, primarily supported by the energy transition, which could lead to a structural deficit of 579,000 mt by 2026, unless new supply was established.

As electric vehicle penetration increases to about 40% by 2030 from the current 7%, copper demand from this sector is expected to double to 4.5 million mt from 2.25 million mt, Macquarie Head of Metals & Bulk Commodities Strategy Marcus Garvey added.

Fox said the copper market was coming out of a period of fairly flat mine supply and heading into a couple years of strong growth of around 5.8% on average from projects that started development in 2018 and 2019.

"Committed mine supplies will peak around 2024 and then it will inevitably come down due to grade decline and some closures. We add in a portion of the possible and probable projects ... and if we compare that to the required mine supply that will meet demand, we are looking at a potential supply gap of around 5 million by 2030," Fox said.

However, she said it was important to note that project approvals were again being processed, with around 750,000 mt of new supply approved since December 2020 and an estimated 700,000 mt to potentially be approved over the next six to 12 months.

"If that all comes online, that supply gap, which we've seen developing around 2026 will get pushed out basically by another year or so," Fox said.

"We expect the market to remain fairly tight [in 2022] and then move into a period of surplus on both concentrates and metals as that new mine supply comes on, and then we'll move back into balance before going into deficit again," she added.

Looking at copper price forecasts, Fox said the combination of strong medium-term growth in mine supply and weakening end-user demand was expected to place pressure on prices in the next few years, before finding further support around 2024-25.

"But ... what we're seeing in copper is very thin inventories, so if we get any surprises either on the supply or demand side, we could see a period where prices spike up quite dramatically," Fox said.

Macquarie forecast copper to achieve an average of $9,149/mt in 2021, up from $7,500/mt in 2020, but fall to $8,563/mt in 2022 and $8,000/mt in 2023, before starting to move higher again to $8,250/mt in 2024, $8,750/mt in 2025, and $9,250/mt in 2026.

Nickel to benefit from battery sector

Garvey said nickel demand was also expected to see a large increase due to the growing battery sector, as well as from the stainless steel sector.

Jim Lennon, Macquarie senior commodities consultant, said the nickel market was expected to swing to a surplus of more than 100,000 mt/year over the next few years from a deficit of 125,000-130,000 mt in 2021, which in turn meant a weaker general outlook for prices.

"We've already seen corrections from close to $21,000/mt to close to $18,000/mt and we expect further weakness to develop into the new year," Lennon said.

Macquarie forecast nickel prices to rise to an average of $18,195/mt in 2021 from $17,000/mt in 2020, falling to $17,750/mt in 2022 and $16,500/mt in 2023 before climbing again to $18,500/mt in 2025 and $19,500/mt in 2026.

On the demand side, Lennon said demand had surprisingly risen 15%, or 400,000 mt, year on year in 2021 so far, mainly driven by stainless steel, but also by EVs.

Global plug-in light duty EV sales are expected to rise to 6 million units in 2021 from 3.1 million units in 2020, and to 12.5 million units in 2026 and 21.7 million units by 2030, according to S&P Global Platts Analytics.

While stainless steel accounts for 70% of demand and was 10 times larger than battery demand in 2020, Lennon said batteries were expected to become the main driver over the next decade and, despite uncertainty in terms of the battery chemistries, nickel would be a major beneficiary from the EV revolution.

Overall, Lennon said this decade would see "by far the highest growth [in demand] ever seen in the nickel market -- the requirement in new supply between 2020 and 2030 is over 2 million mt/year."

To meet this, Indonesia will grow supply with the dual expansion of nickel pig iron and high-pressure acid leaching for the battery industry, as well as some potential to convert NPI into battery-grade nickel.

In 2021 alone, Lennon said Indonesia had increased supply by 300,000 mt, up from the expected 200,000 mt.

However, supply outside of Indonesia has faced a series of disruptions resulting largely from underinvestment over quite a long period of time, including strikes at Vale in Canada, flooding of mines in Russia, and large disruptions in New Caledonia.

"Growth projected for next year is even higher than this year to over 400,000 mt/year -- by over 18% -- driven almost entirely by Indonesia and the expected recovery in non-Indonesian supply," Lennon said.