AME Roundup: Patricia Mohr sees a copper supercycle emerging in the medium term

Copper could be heading towards supercycle territory in the medium term, with price levels expected to reach above US$5 per pound, economist and commodity market specialist Patricia Mohr told a mining event in Vancouver this week.

While most commodity prices have surged since the onset of the Covid-19 pandemic, demand for the suite of critical metals required to power the energy transition and enable the world to reach net-zero carbon emission targets do not always align with the production outlook for these metals. This is also true for copper.

While the top-performing metals of 2021 comprised China neodymium oxide, lithium spot concentrates in Western Australia, nickel sulphate in the domestic market in China, and LME copper, the copper price performance was not nearly as spectacular as the price leaders.

However, the newfound demand for copper as a critical metal drives the potential for higher prices and prompts the copper price to act in non-traditional ways.

According to Mohr, industrial activity in China has decelerated to about 3% for six months running. “Typically, in the past, copper prices would have cratered. You’d be looking at US$2.50 per pound copper, but instead, you’re looking at US$4-plus copper, and the key reason is the advent of new demand, which is driving the market forward. China is likely to slow from growth of 8.1% last year to about 5% to 5.5% in the next few years, which is its potential for growth,” she told the AME Roundup in Vancouver.

Mohr, which co-authors Capitalight Research’s ‘Critical metals for a sustainable world’ newsletter, attributes the recent rise in copper prices mainly to China’s stockpiling of the red metal starting in 2020 at low prices.

But recently, prices recorded new record highs and ended 2021 at US$4.88.

It has moved down to about US$4.30 per pound in recent weeks, and Mohr sees prices averaging last year’s average in 2022 of about US$4.23.

While she sees potential for copper prices to close the year even a little lower because of new production coming online such as Teck Resources’ Quebrada Blanca Phase 2, Ivanhoe Mines’ Kamoa-Kakula ramps up, among others.

However, beginning around 2025, Mohr sees copper is going “jump up to another level” at about US$5 or higher.

“I think that Robert Friedland is right about the outlook for copper. You’re going to see a big decline in actual real-world production from around 2026 onwards, amid robust demand growth worldwide,” she said.

Meanwhile, the incentive price to build new mines is rising. Mohr sees the incentive price at about US$3.50 to justify a new copper mine development. “I actually think it’s more like US$4.00, which the major analysts would not be using.”

“I think you’ll have a very strong performance from copper in the medium term,” she said.

Mohr sees electric vehicle copper use as the primary source for new demand, which entails about three times the copper intensity than for a conventional gasoline-driven vehicle which demands about 20 kilograms per vehicle. For EVs, it’s 75 to 83 kilograms.

Renewable power is another significant source of new demand. One of the exciting things for copper is that wind and solar power typically use two times or more copper per megawatt of traditional power such as hydro and natural gas.

Douglas Porter, chief economist and managing director of BMO Financial Group, is also “constructive” on commodities in general, but he is not convinced copper is headed for supercycle territory.

“We are looking for a little bit of moderation almost across the complex,” he said. “I guess the best way to summarize it is while we’re constructive on commodity prices, we’re not in the supercycle camp. You can certainly make the case that there are some specific commodities, whether it’s because of the green energy push or the EV demand push, that could well be in a super cycle for the sector as a whole, but not for the group as a whole,” said Porter.