Copper is the New Oil

Episode Summary

Executive Summary: Goldman Sachs Research argues copper is central to electrification and the net-zero transition, but supply is lagging badly. Strong green demand, tighter inventories, and a lack of new mine investment point to a multi-year bull market and a potential historic supply crunch, with prices expected to rise materially through the mid-2020s.

Main Topics: Copper as a strategic resource (Priority: 5/5): Copper is framed as 'the new oil' because it is essential for capturing, storing, and transporting electricity, making it critical to EVs, renewable power, and grid infrastructure. Green demand surge (Priority: 5/5): Demand from electrification is expected to accelerate sharply over the decade, with green uses rising from a small share today to a major source of incremental copper consumption. Severe supply underinvestment (Priority: 5/5): The mining sector has not approved major new projects and has been conservative on exploration and development, leaving the market unprepared for demand growth. Price outlook and market tightness (Priority: 4/5): The market is expected to remain in deficit in the near term and then face larger deficits later in the decade, driving a strong multi-year price rally. Why miners are reluctant to invest (Priority: 4/5): Management teams remain cautious due to past price collapses, COVID-related operational difficulty, ESG/permitting delays, and lower-quality, higher-cost projects. Regional shift in demand (Priority: 4/5): Unlike the prior China-led cycle, future green copper demand is more globally distributed, with the US and Europe playing major roles alongside China.

Key Arguments: Copper is the most cost-effective conductive metal and therefore the key raw material for electrification and renewable energy buildout. The supply side is not responding to higher prices; no major copper project was approved in the prior 12-18 months, signaling a looming crunch. Current tightness is driven both by strong industrial demand and by rising green demand that will scale materially over the next few years. Copper prices need to rise high enough to change producer behavior and stimulate mine approvals, new capex, and scrap growth. Scrap supply can help, but it cannot solve the projected long-term deficit without a major increase in mine investment. Copper demand growth from the energy transition will be geographically broader than in prior cycles, reducing the market's dependence on China. The industry’s caution stems from memory of the early 2010s bust, pandemic execution challenges, ESG/permitting hurdles, and poorer project economics.

Data Points: Current copper price: around $10,000 per tonne - Referenced as today's price at the time of the May 14, 2021 recording 2022 average LME copper price forecast: $12,000 per tonne - Goldman Sachs Research projection for the next year 2024 average LME copper price forecast: $14,000 per tonne - Projected as deficits deepen later in the decade 2025 average LME copper price forecast: $15,000 per tonne - Expected as supply crunch intensifies Green demand in 2021: around 1 million tons - Current green copper demand level mentioned for 2021 Green demand share in 2021: around 4% of global demand - Shows green demand is still relatively small today Green demand by mid-decade: around 2.5 million tons per year - Expected increase as electrification accelerates Green demand share by mid-decade: close to 8-9% of global demand - Projected market share as green demand scales Green demand by end of decade: just under 6 million tons per year - Projected demand from EVs, infrastructure, renewables, and related uses Green demand share by end of decade: close to 20% of global demand - Indicates how large electrification demand could become 10-year supply gap: just over 8 million tons - Long-term shortfall in the copper market Supply gap as share of market: nearly 40% - Describes the projected gap relative to the market size Scrap supply growth over decade: nearly 4 million tons - Expected increase as prices rise and recycling responds Scrap supply growth rate: about 50% increase - Implied change in global scrap supply over the decade Mine development lead time: 4 to 5 years for an existing mine; longer for a new mine - Explains why action must begin well before deficits materialize Capex level comparison: current copper mining capex is about half of late-2000s levels - Used to illustrate how restrained investment remains Management teams at GS Copper Day: 7 global copper producers - Management event held earlier in the month to gauge sentiment Time since last major project approvals: no major copper project approved in the prior 12-18 months - Evidence of supply-side inaction China's share of green copper demand growth: around one-third - Regional distribution of projected decade growth US share of green copper demand growth: around one-quarter - Shows demand is not solely China-driven Europe share of green copper demand growth: around one-quarter - Shows policy in Brussels is now as important as Beijing Global manufacturing/industrial demand outlook: strong over the next 12-18 months - Durable goods and supply-chain activity support near-term copper demand

Pivotal Quotes: "copper is the new oil" — Nick Snowden: Core thesis explaining copper's strategic importance in the commodity complex "the copper market is sleepwalking into a really sizable supply crunch akin to what we saw in the oil market back in the 2000s" — Nick Snowden: Describes the mismatch between accelerating demand and weak supply response "this is only the first year of a multi-year bull market" — Nick Snowden: Investor takeaway on the likely duration of the copper price cycle

Implications: Copper may become a defining bottleneck of the energy transition. Investors and producers should expect sustained tightness, rising prices, and a need for far more mine investment, permitting progress, and recycling capacity.