Industry analysts and managers say that the recent decline in copper prices may curb investment in new copper mines, a trend that could lead to a large-scale shortage of copper supply in the coming years, which is crucial for manufacturing and renewable energy projects.
Due to concerns about trade tensions weakening the global economy and market demand, copper prices have recently fallen to a two-year low. Due to the extensive use of copper in construction and manufacturing, its price trend is closely linked to the global economy, especially China's economic growth momentum. China accounts for approximately half of global copper demand.
Some investors have expressed that due to the time required for new projects to start production, the current price drop may actually lead to a larger increase in a few years. Many of these copper mines require more funds to complete, and they are scattered in high-risk areas around the world.
Analysts say that over time, ore grades are also declining, which may lead to lower than expected available supply, while demand for copper from electric vehicles and new technologies may increase around 2025.
Investors believe that many long-term projects are only feasible if copper prices reach $3 per pound, and currently copper prices are about 13% lower than this level. The last time copper prices closed above this level was in June 2018.
Jefferies Financial Group predicts that if miners do not invest more capital, there will be a shortfall of 1 million tons in 2024. Commodity consulting firm Wood Mackenzie recently predicted that the supply gap will reach approximately 4 million tons by 2028, based on an estimated production of approximately 25 million tons in 2028.
The idea behind these predictions is that the long-term transformation towards electric vehicles and clean energy technologies in the fields of transportation and energy storage cannot be achieved without the metal copper. The copper usage of electric and hybrid vehicles is higher than that of traditional vehicles, and analysts predict that the construction of electric vehicle charging stations will bring huge demand growth. It is expected that rapidly growing countries such as India will continue to invest in copper intensive infrastructure projects.
Another reason why some investors believe that copper prices will eventually rebound is that operating copper mines in Indonesia and other places still faces high risks.
Many people expect Freeport McMoRan Inc. The success of the company in the coming years will depend on its ability to convert the giant Grasberg copper and gold mine in Indonesia from open-pit to underground mining. At the end of last year, the Indonesian government spent nearly $4 billion to acquire a 51% stake in the mine from Freeport and Australian mining company Rio Tinto Ltd. As the mine continues to shift towards underground mining, Freeport revenue decreases and capital costs increase.
Rio Tinto stated last month that the time and cost required to build a copper mine in the southern Gobi Desert of Mongolia will exceed expectations. This is another sign that miners are facing challenges.
Analysts say that the difficulties faced by industry leaders Freeport and Rio Tinto may indicate that other companies may postpone complex projects in the coming years. Despite abundant opportunities in countries such as Chile and Australia, copper mining may be more challenging than expected.