Copper prices are forecast to rise by more than 75% in the next two years, according to the latest BMI report from Fitch Solutions. The reasons for this include supply shortages in the mining sector, but more importantly, increasing demand for the metal due to the global energy transition. A potential decline in the US dollar once the US Federal Reserve begins cutting interest rates is also expected to support copper prices.

Copper prices: Long-term upward trend Source: stockcharts.com

The global energy transition must be advanced. While more than 200 countries have committed to a plan to triple worldwide renewable energy capacity by 2030 at the recent COP28 climate conference (which alone is driving copper demand immensely), critics have already pointed out various loopholes in the latest agreements.

The International Energy Agency warns that despite the goal agreed upon by the United Nations as part of a package of measures, it still falls short of what is necessary to limit global warming to 1.5 degrees Celsius above pre-industrial levels.

The UN’s scientific panel has found that the global temperature rise is already at least 1.1 °C and that the world experienced the warmest year on record in 2023.

As a result, even higher investments in the expansion of renewable energy sources will likely be necessary in the medium term.

Demand for copper is increasing immensely. In a report from December, Citibank already forecasted that the higher goals for renewable energy would increase copper demand by an additional 4.2 million tons by 2030.

According to Citibank, this could drive copper prices to $15,000 per ton in 2025, representing an upside potential of over 81%.

The base metal is essential for the construction and expansion of renewable energy sources. The expansion of photovoltaics alone requires 300-400% more copper per MWh than a conventional power plant. Additionally, the metal is a crucial component in the production of electric vehicles, power grids, and wind turbines.

Supply problems are also supporting copper prices. Other analysts see an upward trend for copper due to supply issues, with Goldman Sachs expecting a deficit of over 500,000 tons in 2024.

Last November, First Quantum Minerals halted production at Cobre Panama, one of the world’s largest copper mines, following a Supreme Court ruling and nationwide protests over environmental concerns. Anglo American, another major producer, announced plans to reduce copper production in 2024 and 2025 to cut costs.

Conclusion: Copper has enormous recovery potential. Considering its supply and demand situation and the expectation of a further market deficit in 2024, copper is significantly undervalued. Furthermore, the trend is pointing towards an even more severe deficit over the next 2-3 years, with a significantly increasing demand and a supply that cannot keep up due to rising costs and/or political risks. The logical consequence of this fundamental situation: copper must become more expensive.