On the New York futures market, The price of copper broke a new historic record during the session on Friday by crossing 5.13 dollars per pound (a little less than 500 grams), ending at 5.08 dollars. On the London metal market, the London Metal Exchange, a tonne of red metal for delivery within three months was priced at nearly $10,400. In three months, its price jumped 30%. “Growing concerns about insufficient supply relative to speculative demand have been amplified by a shortage in the United States,” points out John Plassard, economist at Mirabaud Equity Research.
Raw materials: 60% of companies hit by soaring prices
The upward trend is not new. Prices are appreciating (see graph below) since 2020, the global market being in deficit and supply not covering demand. And even if, over the first two months of the year, production increased by 5.5%, “global copper demand increased by 7%, mainly supported by Chinese demand, up 14%,” explain the experts from the International Copper Study Group (ICSG).
Structurally, this metal will benefit, like lithium, cobalt, nickel, rare earths and even manganese, from growing demand to ensure the energy transition necessary to fight against climate change. With this in mind, metals will replace hydrocarbons with the electrification and digitalization of all economic activities. “Copper is the only essential metal present in all the most important clean energy technologies – batteries for electric vehicles, solar photovoltaics, wind turbines and power grids – due to its characteristics: conductivity, longevity, ductility and corrosion resistance “, recalls the International Energy Agency (IEA), in its annual report “Global Critical Minerals Outlook” published Friday.
The mergers and acquisitions movement will intensify in the mining sector
In 2021, copper demand amounted to 5.38 million tonnes for the energy transition alone, or 20% of total copper demand. According to the IEA, it is expected to rise to 16.3 million tonnes in 2040, or 50% of total demand.
In addition to production potential, geopolitical risk fuels concerns. By 2030, 48% of copper mining production will be concentrated in three countries, Chile (23%), the Democratic Republic of Congo (DRC) and Peru, and even more for refining (transformation of ore into metal), at 58% in the DRC, Chile and China, the latter crushing the other two with a share of 46%.
“Hopes for an increase in mining supply are low, as the high costs of engaging in new projects have pushed mining giants to pursue mergers and acquisitions instead of launching new projects,” remarks John Plassard, referring to the hostile takeover bid launched by the Australian-British company BHP on its British counterpart, Anglo American, two giants of the sector. Despite the improvement in the offer price, from 31 billion pounds (36 billion euros) to 34 billion pounds (39.5 billion euros), Anglo American rejected BHP’s offer. Such a merger would have created the world’s largest copper producer.
However, this should not stop the mergers and acquisitions movement. In the mining sector, they make it possible to acquire resources and reserves immediately, whereas prospecting and putting a mine into operation often takes more than ten years. Furthermore, capital intensity (the investment necessary to generate income) for copper production has increased on average, according to the IEA, from $20,000 per tonne in 2017 to $30,000 today, due to of soaring production costs.
As for the production of recycled copper (secondary production) on which non-producing countries rely, if it is expected to double by 2040, it will only satisfy 30% of needs in 2040 compared to 20% in 2030, anticipates the IEA.
