LONDON, Feb. 25, 2019 /PRNewswire/ -- In recent years CRU's long term view of the copper market has foreseen falling production at existing mines coupled with a demand boost from electric vehicles resulting in multi-million tonne per year shortfalls in supply and commensurately higher prices by the end of the next decade. The forthcoming Copper Long Term Market Outlook which is to be published at the beginning of March 2019, considers whether this narrative still holds true.
Copper price paradox
CRU continues to hold a positive long term outlook on copper, predicated on a significant supply gap eventually opening up in the 2020s. However, today's low $6,000s /t copper price contrasts with project economics that require a much higher price in order to incentivise new mine capacity. For the major mining companies in particular this presents a conundrum: invest now in an attempt to maximise future cash flows while risking the ire of short-term focused shareholders or wait until the copper price recovers but then potentially miss out on the most lucrative years of the next upturn.
Moving from surplus to deficit
Over the last year CRU has fully incorporated a number of high profile copper projects into their mine supply projections, including Quebrada Blanca Sulphides and Quellaveco. Board approval for these multi-billion dollar investments was undoubtedly helped by the period of near or at $7,000 /t copper prices during the second half of 2017 and first half of 2018. More broadly, renewed C-Suite confidence has helped firm up the project pipeline to the extent that we now expect almost 1 Mt/y more mine supply by the early 2020s than at this time last year. Looming market deficits have given way to modest surpluses and prices are expected to remain below $3.00 /lb ($6,614 /t) in real terms over the next five years.
The shift in the medium term view raises the question as to whether the long term outlook for copper has also changed. Previously, falling production at existing mines coupled with a potential boost to demand from electric vehicles meant that multi-million tonne per year shortfalls in supply and commensurately higher prices were expected by the end of the 2020s. The forthcoming Copper Long Term Market Outlook which is to be published at the beginning of March 2019, considers whether this narrative still holds true.
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