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Jefferies forecasts multi-year copper deficits, a surge in prices and plenty of action for Freeport and First Quantum

“Renewable power systems are at least five times more copper-intensive than conventional power,” the analysts note

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The copper market is heading into a multi-year period of deficits, broking house Jefferies has predicted in an extensive and in-depth analysis.

There’s been some disruption to supply this year due to coronavirus, but the Jefferies analysis focusses more on the potential increases in demand driven by growth in the deployment of renewable energy and electric vehicles.

As a natural knock-on effect, Jefferies predicts that higher prices will incentivise investment in new mine capacity.

Copper price forecasts lead to upgrades

Accordingly, the broker has raised its copper price forecasts, which it runs on three different scenarios, a base case, a bull case for renewables, and a bear case.

In all three scenarios the price looks set to peak in 2026, under the base scenario at US$4.50 per pound, under the bull scenario at US$5.00, and under the bear scenario at US$3.75.

The current price is US$3.29 per pound.

The broker has accordingly raised its price targets for a number of companies in the copper space, and currently favours First Quantum (TSE:FM) and Freeport McMoRan (NYSE:FCX) as the best of the bunch, but also upgraded Antofagasta (LON:ANTO) and Glencore (LON:GLEN) to 'buy' from 'hold'. The broker set a target for Freeport of US$35.00, for First Quantum of C$33.00, for Antofagasta of 1,400p (lifted from 1,100p) and for Glencore of 250p (up from 175p).

The timing will obviously be key to the accuracy of the Jefferies forecasts, but there’s little doubt the way it’s reading the trends is correct.

Renewables five times more copper-intensive

In an interesting slide midway through the analysis, the broker lists all the countries that have pledged or legislated for a carbon neutral future. The list is extensive, includes all the world’s major economies except the USA, and even two countries that have already reached carbon neutrality, Suriname and Bhutan.

Not much heavy lifting for Bhutan to do, perhaps, but it sets a precedent. The UK has already all but phased out its reliance on coal. Natural gas will be next, if harder to achieve.

All of which means investment in renewable infrastructure globally is likely to be extensive.

“Renewable power systems are at least five times more copper-intensive than conventional power,” says Jefferies.

“Offshore wind is the most copper intensive, at around 15 tonnes per megawatt (MW) of installed capacity, due to extensive copper cable requirements. This compares to onshore wind and solar at around five tonnes per megawatt and conventional power at around one tonne per megawatt.

It’s these kind of exponential increases that have lead Jefferies to estimate that on the base case global copper demand is likely to increase from around 23mln tonnes this year to over 30mln tonnes by 2030.

“We forecast copper demand in renewable energy to increase from 991,000 in 2020 to 1.9mln tonnes in 2030 in our base case and to 6.4mln tonnes in our bull case,” says Jefferies.

Electric vehicle demand revving up

In percentage terms, though, the biggest boost to demand will come from electric vehicles. In this space, demand will be ten times higher in 2030, with overall tonnes consumed amounting to nearly 1.7mln tonnes.

“EVs require around 83kg of copper on average while most internal combustion engine vehicles contain less than 20kg of copper,” Jefferies points out.

“In addition, EV charging points contain around 10kg of copper each.”

By 2050 Jefferies reckons there’ll be at 60mln electric vehicles on the roads.

All of which means copper demand will significantly exceed supply, starting in 2021. And shortages should lead to substantially higher prices.

“If our assumptions are correct, the squeeze higher in copper is a question of 'when' rather than 'if',” says Jefferies.

Quick facts: Antofagasta PLC


Price: 1329 GBX

Market Cap: £13.1 billion

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