DIFFICULTIES experienced by Northern Dynasty, a Canadian mining development firm, in permitting its proposed Pebble copper/gold mine in Alaska, a deposit that is considered one of the largest undeveloped resources globally, demonstrates why mining firms will struggle to meet the demand build over the next ten years.
According to a report by Jefferies analysts, copper demand will “significantly” exceed supply from next year with deficits set to blossom over the next seven to eight years. The multi-year deficits will drive the price of copper inexorably upwards.
Decarbonisation is a major factor in Jefferies’ assessment of increased copper demand. Copper plays a much greater role in the manufacture of renewable applications than in conventional fossil fuel power.
For instance, offshore wind consumes 15 tons of copper per megawatt of installed capacity owing to extensive copper cable requirements, said Jefferies. This compares to onshore wind and solar at five tons per MW. A ton of copper is used in the manufacture of the conventional installed power equivalent.
“We forecast copper demand in renewable energy to increase from 997,000 tons in 2020 to 1.9 million tons (Mt) in 2030 in our base case and to 6.4Mt in our bull case,” the bank said. Copper demand in renewable energy would fall to 343,000 tons in 2030 as per the bank’s base case scenario. Copper demand this year is estimated to total just over 20Mt.
It takes about seven years to permit and develop a new copper mine.
The report said a risk to its outlook was that it had over-estimated GDP growth of 2% per year whilst the intensity of copper in solar power applications might be lessened as scientists engineered the metal out. But price appreciation was on the cards: the copper price would improve from about $2,75 per pound this year to as much as $4.50/lb in Jefferies updated forecast to 2027. It previously forecast a copper price of $4/lb by 2027.
On a shorter time-frame, China GDP growth has been surprising on the upside, according to a report by Bank of America. It said in a recent report that rebound of Chinese copper demand following the initial onset of Covid-19 and related lockdowns had slowed in the second half of the year, yet it expected demand expansion of 5% next year.
“This, along with the risk of further constraints to output, and higher demand in Europe/US should push up prices further,” it said.
Electric vehicle demand for copper would reach 9.4% of total metal demand from about 2.4% today, said Morgan Stanley in a report in October.
“Infrastructure requirements further boost copper demand in the sector though, and we see growth from EVs as a strong offset to increased recycling and substitution, underpinning copper’s long-term prospects,” the bank said.
