Goldman Sachs explains how a global copper mining shortage could lead to parabolic gains in the price of the metal over the next 10 years
- Andrew Snowdon of Goldman Sachs discussed how a supply shortage in copper mining projects would push the price of the metal higher.
- The firm recently said the metal was “the new oil” and could reach $ 15,000 by 2025.
- Snowdon said mining projects are reluctant to invest in growth and the price of copper will have to skyrocket again to change that.
- Sign up here to receive our daily newsletter, 10 Things Before the Opening Bell.
Goldman Sachs recently issued a note declaring copper “the new oil” and predicting it could reach $ 15,000 by 2025 as the world shifts to clean energy.
The company said copper is the most critical raw material on the world’s path to net zero emissions, as it is used in everything from electric vehicles to wind turbines and solar power.
In one Recent episode of the Goldman Sachs podcastNick Snowdon, one of the researchers, explained why the soft metal is facing a record shortage of supply that will drive the price higher.
“The long-term supply gap in the markets, so looking forward ten years, that gap currently stands at just over 8 million tonnes, or nearly 40 percent of the size of the market. in terms of long-term deficit, ”says Nick Snowdon. “It’s bigger than anything we’ve seen in the history of the copper market.”
The market will need a huge number of approved copper mining projects to meet demand, he said. He stressed that the shortage of supply is not in the copper itself, but in mining projects.
“There is enough copper there. It’s not a story of copper ore depletion. But there is a very limited list, currently, of copper projects,” Snowden said.
Snowdon said the supply side is completely under-prepared for the surge in demand for copper that is expected to come as countries move towards renewable energy initiatives. In the past 12 to 18 months, he said no major new copper projects have been approved.
“Essentially, we are sleepwalking in the face of huge deficits and scarcity. And prices will have to rise even more than our base case currently is,” Snowdon said.
One of the reasons for the mining supply shortage is that the mining sector has been in a very conservative environment in terms of balance sheet activity, Snowdon said. The sector did not invest in the development of projects at an early stage and therefore now the quality of projects compared to 10 years ago is “very poor”, said the researcher.
Even now, the record price levels have not caused a shift in procurement investments as one would expect, he added.
Indeed, in the early 2010s, the mining sector invested heavily in projects, only for the price of copper to collapse soon after, punishing any producer who invested heavily in new projects.
“This memory really lingers among the current generation of managing producers,” Snowdon said.
He also explained that ESG initiatives slow down the process of approving a mining permit. Additionally, the coronavirus has created operational challenges in copper mining.
Snowdon has said at present that the quality of mining projects is lower and costs are higher, and the price of copper will have to rise further before there is an incentive to invest in more projects.
“It’s not an easy proposition to say, ‘Okay, let’s just invest in growth’, because the economy is not as attractive as it was if you go back to the middle / end. 2000s, ”Snowdon said.
He continued, “So I think it all comes together to generate this holdback. And really, the only thing that can break that has to come from the price dynamics and an unbelievably high price. And we don’t think that. the current price is, however, at the level to generate this change. “