The Copper Supply Gap is Here

Copper is an incredibly important metal. 

It is the almost the best conductor of electricity, second only to silver (which is too expensive to use in most cases). It also has exceptional thermal conductivity and is both ductile and malleable. Beyond this, copper is also naturally resistant to corrosion, and can be recycled fairly easily with no quality loss.

The other overlooked property of copper is its bacterial resistance — which makes it almost irreplaceable in certain applications. For context, while aluminium or silver (or even plastic) can replace copper in some cases, where prevention of bacterial growth is crucial, copper is irreplaceable.

So you have a metal that can be easily shaped and is extremely conducive to heat and electricity transfer.

This makes it the perfect metal for masses of applications, including: wiring, cables, motors and transformers, plumbing, roofing and cladding, printed circuit boards, semiconductors, radiators, vehicles (and more in EVs), wind turbines, solar panels, household appliances, jewellery, coins…

And we also have a world where developed nations are spending heavily on decarbonisation — while the populations of developing countries are starting to demand the same copper-intensive amenities as those found in the west.

If you aren’t aware of the impending copper supply gap, then you need to get out more.

S&P Global thinks global demand for copper will double to 50 million metric tons by 2035 — creating a supply gap of 10 million tons. Bloomberg expects this gap will hit 14 million tons by 2040, with demand for refined copper growing by 53% by 2040 while supply will only rise by 16%.

Goldman Sachs research shows that miners need to collectively invest $150 billion in the next decade to plug the copper gap, while also noting that regulatory approval for new copper mines has fallen to its lowest in a decade.

In the 1990s, copper exploration grassroots budgets ranged from 50-60% of overall copper annual budgets; this had fallen to just 34% by 2021. And it takes 16 years — on average, according to an estimate of sources — to discover and develop a new copper mine.

The majors are instead focused on buying up established assets. Multi-billion-dollar deals are ongoing to reduce costs and bring producing mines on board. BHP bought ASX copper producer Oz Minerals for a hefty premium, while Newmont’s record bid for Newcrest may be primarily about gold synergies but also brings the major huge copper deposits.

But it doesn’t matter who owns the mines. There’s still the same number of producing assets in 

existence.

Consider Rio Tinto’s new Oyu Tolgoi mine in Mongolia. Wood Mackenzie analysts estimate that the equivalent of 12 new equivalent copper mines will be needed to come online by 2030 to meet expected demand. Yet Oyu is being touted as one of the most important copper deposits in the world, and development from bare earth to near production has been extremely hard.

Trafigura — the world’s largest copper trader — CEO Jeremy Weir noted at last year’s World Copper Conference that ‘if we don’t have enough copper, it could seriously short circuit the energy transition.’ 

And the International Copper Association thinks that while global supply is expected to jump by 26% to 38.5 million tonnes annually by 2035, it will likely still fall 1.7% short of demand — even assuming that recycling rates increase exponentially.

Ivanhoe founder Robert Friedland famously thinks that more than 700 million MT of copper will need to be mined in the next 22 years just to maintain typical 3.5% GDP growth, without even considering the electrification of the global economy. This is equivalent to all the copper ever mined in history.

Globally, 21 million metric tons of copper are mined every year, but it’s not going to be enough. Over the next 20 years, the International Energy Agency expects it to become a dominant mineral alongside graphite and nickel, with demand set to treble by 2040 as net-zero goals accelerate.

Meanwhile, emerging markets such as Zambia are seeing output accelerate. Zambian Finance Minister Situmbeko Musokotwane recently enthused that ‘copper is the new oil.’ And CRU Group analyst Adam Khan notes that Zambia could add nearly 1 million tons of copper production per year over the next decade.

In 2021, the shortage gap — the difference between copper mined and demand — came to just 2% of production, enough to push up copper prices by 25%. 2035’s gap could be at least ten times as much.

Disruptions at many major mines are forcing smelters to pay higher prices to obtain mined ore, and Chinese plants which produce most of the world’s refined copper are moving closer to implementing a joint output cut. Many smelters are no longer able to operate profitably as they have to fight for ore, and many will cease processing.

Simultaneously, investors are becoming more optimistic about China — the manufacturing purchasing managers index in March just registered the highest reading in a year.

What do the big names say right now?

• Goldman Sachs — copper prices will hit $10,000 per tonne by the year-end on robust Chinese demand and the ‘ongoing supply-side shock.’
• Bank of America — analyst Michael Widmer notes that ‘the much-discussed lack of mine projects is becoming an increasing issue for copper. This, along with investment in green technologies and a rebound of the global economy, should lift prices to US$10,250/t (465c/lb) by the fourth quarter.’
• Macquarie — revised down its copper supply forecast by 1 million tonnes for 2024 since last September. Argues ‘lower production is likely to have a lagged ripple effect through the supply chain.’
• Citi — ‘copper’s second secular bull market this century is being driven by booming decarbonisation-related demand growth. Only higher prices will solve these deficits.’ They point out that the 2000s bull run saw copper rise fivefold in three years and note there could be ‘explosive price upside’ again over the next three years.
• Morgan Stanley — ‘elevated mine supply disruptions point to a deficit of 700,000 tonnes and should start to feed through to refined production too,’ and they predict a $10,200 per tonne copper price by Q3.
• Trafigura — chief economist Saad Rahim thinks that ‘if you look at the demand that is coming from data centers and related to that from AI, that growth has suddenly exploded’ and argues there could be another one million ton demand as a result on top of the expected current four to five million ton supply gap by 2030.

At some point it gets a bit overdone, but every single person in the world of copper expects demand and pricing to rise as supply continues to remain constrained.

And here at MININGAIM.CO.UK, we are happy to cover almost anyone in the space. The reality is that there is not enough copper for current or future demand, and therefore anybody with some decent assets at any stage of the lifecycle should see some benefit.

We think that would-be copper small cap investors should start by researching Jubilee Metals, which as a mid-cap processor of chrome, palladium and copper is perhaps easier to start with than a pure explorer.

Beyond Jubilee, we also rate others exploring in Zambia - including Galileo Resources, Xtract, African Pioneer and Arc Minerals. 

East Star in Kazakhstan and Asiamet in Indonesia also have promising assets - with all of these companies either exploring very promising tenure or planning on building near-term small scale mines.