The big crunch is here as copper decouples from market cycles, BofA says

Copper is increasingly ‘dancing to its own tune’, with prices of the red metal forecast to reach about US$12,000 per tonne by 2026, say Bank of America analysts.

BofA analysts are tracking an energy transition and technology-driven decoupling of the metal from traditional commodity markets and broader economic cycles. Tight copper mine supply is increasingly constraining refined production, the bank said, adding the lack of mine projects is finally starting to affect markets, according to Michael Widmer, a commodity strategist and co-author of an April 8 report.

“The pronounced lack of new mine projects has begun to bite, constraining refined copper production and spotlighting years of underinvestment in copper exploration and development,” Widmer wrote.

The tension between demand and supply, coming as capital costs at mines rise while copper prices are slower to catch up, leads to significant price projections and concerns over the metal’s availability for essential technologies in the near term. The bank’s price forecast reflects the severity of the supply constraint amidst rising demand.

BofA’s price forecasts contrast against that of Fitch Solutions unit BMI, which has revised its 2024 copper price forecast to US$9,200 per tonne from US$8,800 on the back of a tighter supply outlook and a decline in US dollar strength but calls for 2026 prices to average US$9,600 per tonne. The Bloomberg consensus calls for an average 2026 price of 9,378 per tonne.

 

BofA forecasts a market deficit of 324,000 tonnes this year, growing to 743,000 tonnes by 2026.

Copper prices surged over 15% in the past two months to reach US$9,419.50 per tonne on April 8, near a 15-month high, following mine disruptions that closed refined-copper capacity at Chinese smelters. These smelters contribute to more than half of the global supply. The metal was trading at US$9,363 per tonne on Thursday.

Copper reached a record on the LME in May 2021 at US$10,747.50 per tonne amid strong Chinese demand and COVID-19 supply disruptions.

Despite potential supply constraints, the demand for copper remains strong, fuelled by investments in green technologies, a rebounding global economy, restocking efforts, and possible rate cuts.

The red metal’s importance in renewable energy technologies, EVs, and infrastructure development makes it indispensable in the global shift toward sustainability. Copper’s centre-stage role further worsens the impact of any supply limitations, the analyst said.

As a major player in the copper market, BofA warns that China’s investment decisions, particularly with green technologies, significantly impact global copper demand. The report highlights the risk of China reducing its green investments, which could ease the demand side of the equation but still leaves the overarching issue of supply constraints, Widmer says.