Investors Predict Unprecedented Scale of Copper Buying as EV Use and Renewable Energy Grows

Investors look set to pile into the copper market on an unprecedented scale over the next few years as the use of electric vehicles and renewable energy grows, according to analysts at Citigroup Inc.

The key industrial metal is widely seen as a proxy for global economic activity and prices have collapsed in recent months as demand from traditional sectors such as construction and consumer goods has weakened.

Even traditional copper bulls like Goldman Sachs Group Inc. backtracked, saying they were wrong in predicting a sharp rise in prices this year.

But copper is fast emerging as a key commodity for investors seeking exposure to the energy transition, and they are likely to pile in quickly as the gloomy global growth outlook begins to improve, according to Max Leighton, Citi’s managing director of commodities research.

This will set the stage for a buying frenzy as orders from automakers and network operators flood the market.

The bank forecast that rising allocations from index-tracking investors as well as hedge funds could help push the copper market’s net upside to around 4 million tonnes by 2025, a sharp reversal of current bearish sentiment.

That would equate to about a fifth of global supply and double the previous peak seen in 2021. As use starts to rise, increased hedging activity by carmakers could add another 1 million tonnes to long positions, bringing a wall of money in the futures markets just as demand begins to outstrip supply in the physical industry.

That will help lift copper to a record high, Citi said.

“If you want to start a decarbonizing commodity trade, the only really liquid commodity is copper, and it’s the most liquid,” Leighton said by phone from London, as quoted by the financial publication Bloomberg.

“Copper’s unique characteristics mean it could make the oil boom of 2008 look like child’s play.”

The bank advises investors and consumers to start buying soon as the weak macroeconomic backdrop keeps prices around $8,300 a tonne. Citi said copper could fall further in the near term but should start to rise within six to 12 months, reaching around $15,000 in 2025 in the most bullish scenario.

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Copper jumped to a record close to $11,000 in early 2022 as a surge in demand during the pandemic left the industry critically low on supplies and the war in Ukraine fueled fears about supplies from Russia.

During the rally Goldman Sachs Group Inc., BlackRock Inc. and Trafigura Group predicted the green energy revolution would push prices much higher, but that has so far been more than offset by China’s tepid recovery from lockdown, Europe’s industrial recession and rising interest rates.

Sentiment soured to the point that, on a net basis, investors turned to copper for the first time in three years on the London Metal Exchange. However, the lead metal has held up much better than some other industrial commodities such as zinc or oil this year, and Leighton said investors would bet much more against it if it weren’t for the good long-term outlook for demand.

Copper mines are already making strong margins at today’s spot prices, but there are widespread warnings that the industry will fall well short of securing the additional supply needed as the energy transition gathers pace.

As prices begin to rise, Citi expects to see significant substitution of copper in traditional sectors – such as consumer goods and air conditioning – and more economical use of copper in electric vehicles and power generation. But the bank still expects an unprecedented gap between mine supply and demand to emerge over the next five to 10 years.

Rising prices for battery metals have led automakers to partially abandon rare and volatile metals like cobalt in favor of iron and other more common materials over the past few years.

But copper, which is not used in the battery itself but transmits energy from the cells to the EV’s motor, is not as exposed to such changes in battery chemistry. Copper’s greater liquidity will also attract much more investment than other battery metals such as lithium and nickel, Leighton said.

The main long-term risk for copper is that its superior position as an electrical conductor is challenged by new cost-effective superconductors, Citigroup said in a report on Monday.

Meanwhile, Citi believes carmakers and other consumers will increasingly demand more than the market can supply, while the accelerating deployment of electric vehicles and renewables will attract an influx of investors.

“You really don’t know how high the cost can be in this environment,” Leighton said.

“The whole market will give up on it, but overall, looking at the historical context, you can easily see it in the $12,000-$15,000 range.”

Copper prices were 0.2 percent lower at $8,280.50 a tonne on the London Metal Exchange as of 9:55 a.m. Shanghai time on Thursday. Prices were almost flat for the year, while aluminum fell 6.8%, zinc fell 20% and nickel lost about 30%.

*The material is analytical in nature and is not advice to buy or sell assets in the commodity markets