At the end of January, copper prices in London rose on continued supply concerns and hopes for further stimulus measures from China.
At the same time, information from the London Mercantile Exchange (LME) indicated a decrease in the stock of copper, resulting in a tailwind for the commodity’s price.
According to Goldman Sachs, 2024 is the year the copper market will be tightest since 2021, as “the market has suffered a supply shock over the past quarter from a series of mine supply downgrades, reducing growth this year by 60 per cent from expectations in mid-2023.”
There will likely be a shortfall of copper exceeding 400,000 tons in 2024.
According to Rio Tinto’s most recent quarterly results, the company achieved a three per cent rise in copper equivalent production last year, as its operations in Australia and Mongolia experienced increased productivity. The company’s management noticed a strong demand for commodities and believes its long-term strategy to increase production reflects the growing demand in the copper market.
In 2024, the global copper market is expected to experience major challenges due to a number of economic trends and specific industry factors. Overall, the copper outlook for this year will be affected by the speed of the recovery of the Chinese economy and the worldwide energy transition movement, influencing supply and demand for key commodities.
China is one of the largest copper consumers globally. In 2022, Chinese copper consumption was 55 per cent of the worldwide total. Recently, the country’s economy has suffered a slowdown in GDP growth partly due to a faltering construction industry. This has led to a revised 2024 growth forecast of approximately +4.5 per cent, with possible further weakness next year.
However, new large financial stimulus from the government is likely to provide a boost to the country’s economy. In addition to the monetary stimulus that is already positively influencing the short-term price for copper, long-term projections indicate strong demand and limited supply.
Another factor impacting global copper markets is the impending energy transition away from fossil fuels. According to CNBC and Bloomberg, global copper demand will trend upwards due to electric vehicle production growth, driven by an international push towards renewable energy.
BMI Ltd. forecasts copper could be worth US$8,800 per ton in 2024, a jump from 2023’s US$8,277 per ton, with refined copper production increasing by more than three pre cent compared to last year. For 2024, the company expects global consumption to rise to 28 million tons, with worldwide demand bouncing to 38 million tons by 2032.
The oncoming energy transition to lower carbon emissions could boost copper’s demand significantly in the long term. During the COP28 conference, more than 60 countries agreed to triple renewable energy capacity goals by the end of the decade. This positive change could drive copper demand up by 4.2 million tons in the next seven years.
If global demand for the commodity does increase according to the scenario mapped out above, the 2025 price of copper may be $15,000 per ton, which is significantly higher than the record-breaking $10,730 in 2022. The demand hike could cause a supply deficit by the end of the decade, meaning key copper producers must plan accordingly. Overall, global copper demand is expected to reach 38 million tons in the next nine years, through annual growth of +3.9 per cent.
It is likely the short-term jump in the copper market observed in January is going to continue in the long term. Higher prices and a decrease in the stock have already taken place. In the longer term, the need for copper is due to significantly rise because of the energy transition effect and the potential recovery of the Chinese economy. To meet this future growing demand, Rio Tinto and other global mining companies should be prepared to increase their production volumes.
Dmytro Konovalov has over 10 years of experience in equity research and analysis for global markets at leading international financial institutions.
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