Source: Zhitong Finance
Author: Rousseau

Chile, the world's largest supplier of copper, recorded its lowest monthly copper production in more than a year, greatly weakening the efforts of the world's top copper producer to recover from its first annual decline in 20 years. The news of the decline in production in the largest copper supplier country can be described as a major advantage for LME copper futures prices, which have broken through the important mark of 10,000 US dollars since this year. Global copper production is insufficient, and demand may be due to global economic recovery, energy transformation, and a big wave of AI layout in global enterprises. The expectation that supply is in short supply may stimulate the continuous rise in LME copper prices.

According to the latest data released by Statistics Chile on Friday, Chilean miners' copper production in April decreased by 6.7% compared to March. Compared to the same period last year, which was extremely weak under the pressure of high interest rates, production fell by 1.5%, to a new low in more than a year.

What is certain is that Chile's monthly copper production results depend on the mining schedule and can be very unstable. However, the start of mining in the second quarter was mediocre, indicating that mining companies, including the world's largest copper supplier, SQM in Chile, are still struggling to cope with problems such as insufficient investment in copper mines, poor ore quality, and business setbacks. The Radomiro Tomic mine, owned by Chile's National Copper Company (Codelco), is still gradually restarting after a fatal mining accident in March.

As the international community resists the high-carbon mining industry, current mine production will drop sharply in the next few years, and high-quality copper ore will become more difficult to find and expensive to mine. The shortage of global copper supply can be described as continuing to ferment. As early as November of last year, after a Supreme Court ruling and nationwide protests over environmental issues, First Quantum Minerals halted its mining and production plans for the Cobre Panamá copper mine, which is one of the largest copper mines in the world. Additionally, Anglo-American Resources Group, an important global copper producer, said it will drastically cut copper production in 2024 and 2025 to reduce operating costs.

The global copper price benchmark, the LME copper futures price, broke through the 10,000 US dollar mark in May this year and almost broke through 11,000 US dollars due to factors such as insufficient global copper supply, the continued popularity of AI, and the transition to renewable energy. However, there has been a correction since May 20, and is currently hovering around 10,000 US dollars.

Wall Street bank Goldman Sachs raised this year's copper price forecast from 10,000 US dollars/ton to 12,000 US dollars/ton, saying that copper prices must rise to 15,000 US dollars/ton next year to avoid a widening supply gap. Goldman Sachs pointed out that the global supply of refined copper is becoming increasingly tight, while demand in the terminal market continues to be steady, which may lead to a sharp shortage of copper supply in the future. Goldman Sachs's latest copper supply and demand forecast shows that there will be a gap of 454,000 tons this year (the previous forecast was 42,800 tons), and there will be a gap of 46,700 tons in 2025 (previously estimated 41,300 tons).

Pierre Andurand (Pierre Andurand), one of the world's most famous commodity traders and a hedge fund manager with the title of “the god of crude oil trading,” predicts that as supply is difficult to keep up with the surge in demand, copper prices will still have huge room to rise, and may quadruple to $40,000 per ton in the next few years. “Due to global electrification trends including electric vehicles, solar panels, and wind farms, as well as demand in fields such as military use and AI data centers, we are moving towards doubling copper demand.” Anduran said.

Another Wall Street giant Citi's current basic forecast is that copper prices will consolidate in the next three to six months, but believes there is still room for further increases in copper prices, depending on the degree of easing by the Federal Reserve and the recovery of the global manufacturing industry. “We remain convinced that the price of copper will rise to $12,000 per ton over the next 12 to 18 months, and in our bullish forecast, the price of copper will rise to $15,000 per ton.” Citi strategists said.

The AI boom is driving continued growth in copper demand

Wall Street firm Morgan Stanley said in its latest report that as global companies lay out the AI field and rapidly iterative development of AI technology, copper demand will increase dramatically, and AI data centers will become a new growth point for copper demand. Commodity trading giant Toke Group also recently indicated that demand for copper associated with artificial intelligence and data centers is expected to increase by as much as 1 million tons by 2030, exacerbating supply shortages by the end of this decade.

In huge AI data centers behind generative AI applications such as ChatGPT, copper metal is mainly used for power distribution equipment and grounding and interconnection. Specifically, copper is mainly used in power transmission (such as cables, connectors, busbars), as well as heat exchangers and sinks, grounding and interconnection, and piping and HVAC systems.

Morgan Stanley predicts that AI data centers will become a new growth point for copper demand. Global AI data center electricity demand is expected to grow at a compound annual growth rate of 18% from 2024 to 2027. The copper demand for AI data centers may increase from 200,000 tons to 500,000 tons per year in 2023 to 500,000 tons to 1.2 million tons in 2027, with a compound annual growth rate of 26%.

Copper is an indispensable part of the global transition to renewable energy

Under the global trend of decarbonization, renewable energy may be the most important source of electricity generation, or not even one. According to the latest statistics from Ember, an energy think tank, as the pace of expansion and growth of renewable energy sources such as wind energy and solar energy continues to far exceed traditional fossil fuels such as coal, the share of renewable energy in the global electricity scale rose to a record 30% last year, and the think tank expects this trend to continue to accelerate this year.

In order to fully control carbon emissions, the global shift to renewable energy has gradually accelerated in recent years, which means that renewable energy generation is expected to continue to expand under the energy transition trend. According to information, the International Energy Agency (IEA) predicts in a report that the share of renewable energy generation in global power generation will exceed one-third by 2024. The International Energy Agency predicts that renewable energy will partially cover the expected increase in electricity demand from 2023 to 2024. It is expected that by 2024, the share of renewable energy generation in global power generation will exceed one-third; according to weather conditions, 2024 is likely to be the first year that global renewable energy generation exceeds coal power generation.

According to the IEA's main baseline forecast data, during the six-year period 2023-2028, the IEA expects the world to add up to 3,684 GW of renewable energy installed capacity, which means that the total amount of installed renewable energy in the world will be about twice the current scale. According to the IEA's forecast trajectory, it is expected that by 2030, the installed capacity will reach at least 9,000 GW, about 2.5 times the current level. The IEA predicts that by 2028, renewable energy will account for at least 42% of total global electricity generation.

The price of copper, which has the title of “Doctor Copper,” currently seems to be moving closer to a new supercycle driven by renewable energy demand. Rising demand for renewable energy can be described as a major stimulus for the rise in copper prices.

Copper is critical to driving the carbon neutrality trend, as well as the development and operation of renewable energy. There is a positive correlation between the spread and penetration of renewable energy and the demand for copper metal. As the penetration of renewable energy continues to increase, the demand for copper in this field will further increase.

For example, renewable energy such as solar energy and wind energy is generated in different regions, and the regions that consume the most energy may be elsewhere, and copper is a key material for power transmission and storage, and is used to manufacture transmission cables, transformers, cables, etc.; copper also plays an important role in solar panels and wind turbines. The wires and connectors in solar panels are commonly made of copper metals, and the power generation part of wind turbines usually requires copper coils; the development of renewable energy usually requires new infrastructure construction, such as wind farms and solar cell farms etc., the construction and operation of these infrastructure requires a large amount of copper metal.

Editor/Jeffy