Copper set for long-term gains?

In the near term, copper is set for more falls. Global recessionary fears brought on by central banks aggressively hiking interest rates have led to expectations of a sharp slowdown coming. The UK, Europe, and the US are all expected to head into a recession. China’s growth is also slowing down and, as one of the world’s largest consumers of copper, that could keep copper prices pressured in the near term. However, copper could be well placed for medium-term gains.

Copper shortfall warning

Copper is set to be in demand over the medium term in a greener world. Copper is needed to conduct electricity and as a commodity, it is ideal as it is both easy to mold and a great conductor. UBS projects that in a world where electrical vehicles have replaced petrol vehicles copper demand will be up by nearly one-fifth from current levels. ING projects that in every single scenario copper demand will be higher by 2035. BloombergNEF estimates that demand will increase by more than 50% from 2022 to 2040. So, with demand set to increase it is noteworthy that supply is likely to struggle.

With copper demand set to double to 50 million tonnes by 2035, the new supply is not there yet. A new S&P global study concludes that copper will suffer shortfalls in the coming decade.

A new copper mine can take around 10 years to develop, so the lack of supply to meet demand is not an easy problem to fix. There may be recycling that helps meet the extra demand, but it seems likely at this stage that copper will find buyers on deep dips from speculators looking at benefiting from the coming demand.

So, while copper is falling in the near term do watch for buying interest from long-term investors looking to scoop up a bargain.

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