Copper

Alex Sutton analyzes the copper industry’s market trends and pricing and provides advice for lenders based on its long-term outlook.

Current Trends

  • U.S. copper mine production increased 2.5% in 2021 following a pandemic-related drop of 4.8% in 2020.
  • The Russia-Ukraine war may impact supply in 2022 as Russia accounted for 3.9% of global copper mining production in 2021.
  • Experts anticipate global demand will grow 1% to 5.3% annually through 2025 driven by the electronics sector and expected growth in the renewable energy, housing and automotive sectors.
  • Forecasts suggest U.S. copper industry revenue may increase at an annualized rate of 2% to $24.7 billion through 2026.
  • The current surplus of copper supply and demand may reverse and result in a deficit by 2025.

Market Outlook

Copper refinery production rebounded in 2021; however, despite a supply surplus in early 2022, industry forecasts suggest growing demand from the power and construction sectors and the proliferation of electric vehicles may result in a copper shortage by 2025.

Mine Production Trends

U.S. copper mine production increased 2.5% in 2021 following a pandemic-related drop of 4.8% in 2020.[1] Global copper mine production also showed signs of recovery, increasing by 2.2% in 2021 after declining 2% in 2020 primarily because of the pandemic and related mine and processing bottlenecks.[2]

Before the Russia-Ukraine war began in February 2022, forecasts suggested copper production would increase approximately 4% in 2022 with the commission of several new projects and expansion of existing mines, rebounding from a deficit in 2021.[3] However, the war may impact supply as Russia accounted for 3.9% of total global copper mine production in 2021 and has been one of the fastest-growing copper mining regions since 2017[4]

On March 2, 2022, the European Union announced it would bar seven Russian banks from the Society for Worldwide Interbank Financial Telecommunication network (SWIFT) as part of broader sanctions, which will end their access to international markets. S&P Global found the sanctions initially had limited effects on Russian shipments but copper smelters who buy Russia-origin copper noted the yuan is now accepted for payments.[5] In late March, the London Metal Exchange suspended placement of Russian-branded base metals from its U.K.-registered warehouses in April;[6] however, experts do not expect this measure to significantly affect the market as the U.K. accounts for less than 0.5% of Russia’s copper.[7] Pandemic-related challenges affecting logistics in key Chinese copper shipping ports like Shanghai are having a more direct effect on market dynamics than the Russia-Ukraine War.[8]

The International Copper Study Group expects a copper shortage by 2025[9] despite a surplus in early 2022 and robust forecasts for mining expansion.[10]

Refinery Production Rebound

Refined copper output in North America rebounded by 8.9% in 2021 after dropping by 11.7% in 2020 according to the U.S. Geological Survey. Global refined copper production grew by 2.8% in 2021 driven by increased output in the U.S., Australia, Canada, Peru, Poland and the Democratic Republic of the Congo. Refined copper production in China, the largest producer of refined copper in the world, was flat in 2021.[11] The International Copper Study Group expects continued growth for refining production capacity, forecasting total refining capacity to reach approximately 32 million metric tons by 2024, up from just over 30 million metric tons in 2021.[12]

Annual Copper Refinery Production Change

Source: The U.S. Geological Survey

Growth in Overall Demand

Experts anticipate global demand will grow 1%[13] to 5.3% annually through 2025[14] while U.S. demand is expected to grow by 2% annually through 2026.[15] Strong demand in the electronics sector, expected growth in the renewable energy, housing and automotive sectors, and forecasts for rising copper prices will drive this growth. Electric vehicle market growth will benefit the automotive sector in particular.

Copper usage has increased at an annual compound growth rate of 3.4% since 1900[16] because of its everyday use as an electrical conductor and building material, among other applications. Experts anticipate its use in renewable energy projects will grow through 2030 in applications like solar arrays, wind generators, geothermal projects, fuel cells and electrical vehicle manufacturing. Forecasts suggest electric vehicle production alone could grow at an annual rate of 18%[17] to 29%[18] through 2030 because electric vehicles use four times more copper in production than conventional automobiles.[19] Experts anticipate solar panel-related copper consumption in North America could grow by more than 100% from just under 70 thousand metric tons in 2021, approximately 3.4% of total U.S. copper consumption, to upwards of 147 thousand metric tons by 2027.[20] Additionally, experts anticipate continued growth for global electricity demand, which requires large quantities of copper.

Valuation Considerations

In March 2022, Jeff Curie of Goldman Sachs and Bold Baatar of the Rio Tinto Group suggested the current copper supply deficit may worsen over the next several years with growing demand from the power and construction sectors and the proliferation of electric vehicles.[21] Copper production fell below expectations in 2020 because of pandemic-related challenges and prices hit a four-year low that March. Low production and prices materially affected North American and European markets and lowered pre-pandemic capital investment plans for many of the largest copper producers.[22]

Despite the initial effects of the pandemic, the average Commodity Exchange Inc. price in 2021 was $4.24 per pound, over 50% higher than 2020 levels and up approximately 6% from the previous record high of $4.01 per pound in 2011. Strong global demand for copper, constrained growth in world copper production, low refined stockpiles and supply constraints stemming from shipping delays contributed to the increase in prices in 2021.

Forecasts suggest U.S. copper industry revenue may increase at an annualized rate of 2% to $24.7 billion through 2026, according to research firm IBISWorld. Strong pricing dynamics and demand for electrical transmission lines, residential and commercial construction consumption, and robust electronics usage will drive this growth. Additionally, copper use in rapidly growing industrial markets, like electric vehicle battery manufacturing, renewable energy and semiconductor wiring, may further boost demand for industry products.[23]

Gordon Brothers expects inventory appraisal values to remain stable based on pricing direction; however, uncertainty about global copper mine production and fallout from the Russia-Ukraine war could affect values going forward. While equipment value declined in 2020 following the pandemic outbreak, values have since stabilized.

[1] “Mineral Industry Surveys – Copper in December 2021,” US Geological Survey, December 2021.

[2] “Copper Preliminary Data for 2021 – ICSG Press Release,” International Copper Study Group, March 22, 2022

[3] Filip Warwick, “Copper market to be well supplied in 2022,” S&P Global Commodity Insights, December 7, 2021.

[4] Henry Lazenby, “Copper deficit narrows slightly to 475,000 tonnes in 2021,” Mining.com, March 22, 2022.

[5] Henry Lazenby, “Copper deficit narrows slightly to 475,000 tonnes in 2021,” Mining.com, March 22, 2022.

[6] Jaqueline Holman, “LME suspends placement of Russian base metals in UK warehouses,” S&P Global, April 1, 2022.

[7] Ekaterina Bouckley, “UK raises tariffs for Russia’s key metals, but minor impact expected,” S&P Global, March 18, 2022.

[8] S&P Global Staff, “Transport hurdles in China seen impacting copper production in April: sources,” S&P Global, April 7, 2022.

[9] Guy Johnson, “Goldman’s Currie Expects 50% Rise in Copper Prices,” Bloomberg Markets, March 9, 2022.

[10] “The World Copper Factbook 2021,” International Copper Study Group, 2022.

[11] “Mineral Commodity Survey – Copper,” US Geological Survey, 2022.

[12] “The World Copper Factbook 2021,” International Copper Study Group, 2022.

[13] “Copper Stranded Wire Market – Growth, Trends, Covid-19 Impact, And Forecasts (2022 – 2027), Mordorintelligence.com, February 15, 2022

[14] “Oxygen-Free Copper Market by Grade (Cu-OF, Cu-OFE), Product Form (Wire, Strips, Busbar & Rod, Others), End-Use Industry (Electronics & Electrical, Automotive, Others), & Region – Global Forecast to 2025,” ResearchAndMarkets.com, Globe Newswire, January 21, 2021

[15] Jared Ristoff, “Copper Rolling, Drawing & Extruding in the US – Industry Report 33142,” IBISWorld, July 2021.

[16] The World Copper Factbook 2021,” International Copper Study Group, 2022.

[17] “Electric Vehicle Market Size to Reach $823.74 Billion, Globally, by 2030 at 18.2% CAGR”, Allied Market Research, February 7, 2022.

[18] “Electric Vehicles – Setting a Course for 2030,” Deloitte Insights, July 28, 2020.

[19] “The World Copper Factbook 2021,” International Copper Study Group, 2022.

[20] Roberto Rodriguez Labastida and Dexter Gauntlett, “North American Solar PV Copper Content Analysis,” Navigant Research, October 31, 2018.

[21] Guy Johnson, “Goldman’s Currie Expects 50% Rise in Copper Prices,” Bloomberg Markets, March 9, 2022.

[22] “Copper supply faces struggle to keep up with growing demand,” S&P Global, October 1, 2020.

[23] Jared Ristoff, “Copper Rolling, Drawing & Extruding in the US – Industry Report 33142,” IBISWorld, July 2021.

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