The price of copper will likely reach $15,000

As the world's largest copper trader, the Trafigura Group predicts that as the global demand for decarbonization creates a serious market gap, copper prices will reach US$15,000 per ton in the next 10 years .

Even in the early stages of the covid-19 crisis, Trafigura Group bet on a rebound in copper prices. Copper prices have doubled in the past year and the transaction price has exceeded US$9,000/ton. Kostas Bintas, the head of copper trading, said in an interview that as Western economies emerge from the epidemic and the green revolution begins, the commodity giant expects copper prices to exceed a record high above $10,000.

So far, the supply disruption caused by the virus and China's unprecedented panic buying spree have pushed copper prices up. China's copper consumption accounts for half of the world's total. However, with the surge in global investment in renewable energy and electric vehicle infrastructure in the next few years, Trafigura believes that the prices of raw materials, the industry leader, will rise further.

Bintas said: "We believe that copper will be stronger in this new crown virus crisis, and that is the truth." "What the new crown pneumonia does is that it makes the rest of the world a major factor in consumption growth. In the past, copper was only related to China."

Trafigura predicts that copper prices will exceed US$10,000 per ton this year and will enter the range of US$12,000 to US$15,000 per ton in the next 10 years. Other investors optimistic about copper prices, including Goldman Sachs Group Inc., Bank of America Corp. and Citigroup Inc., have similar strong short-term expectations, but Trafigura’s long-term goals Very high.

Goldman Sachs expects copper prices to hit $10,500 per ton within 12 months, while Citi expects to hit $12,000 next year in its bullish forecast. Trafigura said that in the next few years, as the metal industry revalues, this may become the lower limit of prices.

"You can't keep copper prices from going up sharply when you turn to a green economic environment," Bintas said. "How can you have only one and not the other?"

Although China's urbanization pushed prices to record levels in the last major bull market, the trading company expects the rest of the world to play a bigger role this time.

Graeme Train, a senior economist at Trafigura, said: "China has fulfilled its promises to a large extent." "In the rest of the world, we are now really starting to see demand." There are some breakthroughs in the situation."

Surge in demand

Trafigura sold 4.4 million tons of copper in 2020, further surpassing Glencore to become the world's largest copper trader. Unlike Glencore, Trafigura no longer buys mines. It even intends to sell part of its business in Spain-its profits are mainly derived from activities in the physical copper market.

During the pandemic, Trafigura conducted a survey of customers across the industry, and the results showed that even before the green infrastructure stimulus plan took effect, there was a rare surge in demand in Europe and the United States. In Europe, demand in the first quarter increased by nearly 5% year-on-year, which is in sharp contrast to the sluggish industrial growth for most of the past 10 years.

"All the feedback we got is that this is their best quarter in history," Train said.

Trafigura’s bullish forecast for copper will be welcomed by investors who have flooded the market in the past year and mining companies that have already made huge profits. But for consumers, the situation is different.

Some major copper manufacturers have warned that soaring copper prices will prompt buyers to look for alternatives, such as aluminum for conductive wiring. High prices will also stimulate scrap dealers to increase waste collection.

Inventory exhaustion

However, Trafigura believes that with the rise of the green revolution, supply pressure will be too great to avoid price spikes.

The COVID-19 disease has severely affected the supply of scrap and mined copper, leading to a sharp decline in global inventories in the past year. Trafigura said that as inventories approach critical levels, any further supply disruptions could begin to have a huge impact on prices.

"When you see the repricing of copper in a low inventory environment, the market means that only those who really want copper can get copper, and they will have to pay a higher price for copper," Train said.

In addition to the futures market, Trafigura also expects some profound changes in the physical industry as the market further plunges into deficit. Bintas said that the processing fee for smelters to process ore into finished products is already at the lowest level since 2010 and may soon drop to zero or even become negative.

Although this will put severe pressure on the profitability of the smelter, the tight supply of refined copper will push up the transportation premiums paid by customers. He said that by-product prices may also rise, helping to partially offset the impact.

The upcoming green revolution has boosted the prospects of many industrial metals, prompting some analysts to believe that the commodity market has begun a new super cycle. But Trafigura said that the tight supply of copper makes it unique and supports the company's bold price forecasts.