Goldman Sachs Group, the commodities standard-bearer on Wall Street who has repeatedly been bullish this year, chanted only two weeks ago that "copper can be bottomed out" and raised its forecast for copper prices this week. Copper prices are expected to remain above $11000 from next year and rise to $15000 in four years' time.

Goldman Sachs Group's recent report, titled "Copper is the new crude oil", depicts the prospect of rising copper prices: because copper is indispensable to countries around the world to promote the transformation of green energy, demand related to green energy innovation will surge in the future. the current copper market is tight, and if the current price level is maintained, global copper stocks will be exhausted by 2023, that is, early after.

Only a much higher price can stimulate the supply gap to be filled, and copper prices are bound to soar.

No copper, no decarbonization.

According to the Goldman Sachs Group report, copper plays a vital role in achieving the agreed climate change goals of the Paris Agreement. As the most cost-effective conductive material, copper occupies a core position in capturing, storing and transporting new energy.

In the discussion about the peak of oil demand, people ignore the fact that without a significant increase in the use of key metals such as copper, there will be no renewable energy to replace oil.

Goldman Sachs Group pointed out that the global economy's move towards net zero emissions remains the core driver of a structural bull market in commodity demand, and copper is particularly important among the metals needed for green energy.

Green Revolution will support Copper demand

At the heart of copper's carbon economics is a global shift from production systems based on hydrocarbons such as oil and gas to production based on sustainable sources such as solar, wind and geothermal.

Copper has the physical properties that these energy sources are converted and transferred to the final available form.

Goldman Sachs Group's bottom-up model estimates that, benefiting from the use of green energy technologies, demand for such converted alternative energy for copper will grow by nearly 600 per cent to 5.4 million tons by 2030, and 900 per cent in the most optimistic case to 8.7 million tons.

By 2050, copper demand for green energy alone will be equal to China's cumulative demand since the beginning of the 21st century, and will soon exceed this demand.

Given the knock-on effects of non-green channels, the growth in global copper demand between 2020 and 2030 will be the strongest in a decade in history.

The market is not ready for the important demand for copper.

Goldman Sachs Group believes that the current copper market is not ready for the above demand environment for copper. At present, because the COVID-19 epidemic has supported the rebound in demand, supply is stagnant, so supply is tight.

Moreover, poor investment returns over the last decade, coupled with ESG concerns about environmental protection, social responsibility and corporate governance, have curbed investment in future copper supply growth, bringing market supply close to an all-time peak.

After the collapse in copper prices hit head producers around 2015, the mining industry is still afraid of a fundamental shift in growth. Copper prices have risen 80 per cent in the past 12 months, but no major greenfield projects have been approved.

The COVID-19 epidemic has made the situation more complicated, creating enough uncertainty for companies to restart investment decisions. Demand growth value supply tension led to the deterioration of the supply and demand situation. Goldman Sachs Group estimates that by 2030, the long-term supply gap of copper will reach 8.2 million tons, twice the gap created by the copper bull market in the early 21st century.

Copper stocks may be depleted by 2025 due to tight supply

Copper is a long-term commodity, and new greenfield projects have been built for eight years. Because of this long supply cycle and the reluctance of mining companies to increase asset spending, the copper market may not be able to get the supply necessary to meet demand between 2025 and 2030.

This means that in order to stimulate sufficient supply to fill the gap, copper prices must rise now, otherwise there is a risk of chronic scarcity pricing within those five years.

Copper is indispensable to the transformation of green energy, and the demand for supply is bound to stimulate copper prices to rise. Moreover, in the foreseeable future, the lack of significant innovation in copper productivity also requires price increases to stimulate a series of established short-cycle (scrap, demand substitution) and long-term (mining investment) responses.

Copper is bound to rise to $15000.

The current copper price of US $9000 per ton is too low to avoid the risk of running out of stocks in the near future. Goldman Sachs Group believes that the current long-term copper price of US $8200 per ton is not high enough to stimulate the development of enough green space projects to solve the long-term supply gap.

If copper prices remain at $9000 a tonne over the next two years, the supply gap will cause the market to run out of copper stocks by early 2023.

Based on Goldman Sachs Group's scrap and demand model, Goldman Sachs Group expects copper prices to be above $11000 by 2025 if the risk of running out of stocks and oversupply is to be avoided.

The average price will be $9675 / tonne in 2021, $11875 and $12000 / tonne in 2022 and 2023, and $14000 and $15000 in 2024 and 2025, respectively.

As a result, Goldman Sachs Group raised the target price for copper over the next 12 months to $11000 a tonne, up nearly 4.8 per cent from the 12-month target price reiterated by Goldman Sachs Group two weeks ago.