At the beginning of the 2000s, the Chilean economy was just beginning to shake off the harsh effects of the Asian crisis that brought copper prices even below one dollar per pound. But it was precisely in that scenario of high complexity for the world economy and for Chile that the market was incubating a new and robust supercycle in commodity prices. commoditieshand in hand with the consolidation of China as the world’s new factory and the entry of one billion people into a true modern “industrial revolution.”
Just as it happened then, Today the world market is preparing for a new boom of the price of copper and some raw materials, but this time history will not repeat itself in the same way as it was written in the supercycle that dominated the international scene for around a decade.
Still hesitant to baptize this new scenario as a “supercycle,” Experts at least agree that high prices of the red metal are here to stay for several years in the midst of tight inventories and supply; higher costs, risks and slowness in launching new projects; and the greater demand derived from the energy transition, the boom of electromobility and the use of renewable energies.
The largest investment banks have been embracing the idea of a new boom of the price of copper since the end of the pandemic. Two years ago, an optimistic Goldman Sachs baptized the red metal as “the new oil,” given the growing global requirements for the mineral. While Bank of America believes that the price of the metal will be close to US$5 a pound in 2025, the Swiss investment bank Julius Baer has maintained that the only commodity that can have a new price supercycle is copper, unlike oil and gold.
“There are elements in common and there are also differences with what happened in the 2000s. On that occasion we observed the phenomenon of industrialization in China, which led to a great growth of cities as a result of rural-urban migration. This led China to transition from an agrarian economy to an industrial one with the consequent growth in demand for minerals, generating the well-known super cycle of minerals. commodities. That was a structural change in market fundamentals. Today we are also experiencing another structural change, in this case it has to do with the use of copper and other minerals in the energy transition that aims to decarbonize the planet,” analyzes Daniela Desormeaux, Director of Studies at Vantaz Group..
The economist, however, is cautious in quantifying the real impact and magnitude of this structural change in the market, as well as the amplitude of the new cycle. “What we do know is that this is a new change in trends in the fundamentals of the market because technologies to decarbonize the planet are being added to the traditional uses of copper and the applications that we already knew, including electromobility and the use of renewable energies. “, complements Desormeaux, who predicts that the future price of copper will move between US$4.5 and US$5 per pound, with a floor of US$4 per pound.
In recent years, China has embarked on an accelerated race to corner the global market for electric cars, which has an average of four times more copper than a combustion car, which has aroused the discomfort of its European and North American competitors. . In fact, the Chinese BYD dethroned Tesla, Elon Musk’s company, as the largest supplier of electric cars in the world in the fourth quarter of 2023 with more than half a million electric cars sold, amid a record sales of this type of vehicles globally.
More cautious, Jorge Cantallopts, executive director of Cesco, considers it difficult to establish the duration of these accelerated upward cycles, since they could be accompanied by volatility, increased by the action of financial actors. “However, There is enough evidence to believe that this year and the following years the copper market will be very tight and with a high supply risk, which could cause the price to remain high for a relatively long period. The latest figures provided by the International Copper Studies Group, GIEC, at its meeting last week, show that at least until 2026 the market is forecast to be very tight,” explains the executive.
Cantallopts avoids giving price projections, but believes that although demand for the mineral will grow at rates of around 2.5% for the next 2 years, The supply could have “disruptions” for climatic or operational reasons that end up putting upward pressure on the short and medium-term price.
In fact, this week Goldman Sachs raised its deficit outlook for the copper market over the next two years. For this year, its projections point to a deficit of 454 thousand tons and for 2025, 467 thousand tons.
Last week, the president of the Codelco board of directors, Máximo Pacheco, recognized the growing gap between the supply and demand of copper, which would put pressure on prices. “In a recent S&P Global report, it is projected that copper demand will double by 2050. Wood Mackenzie, meanwhile, states that in the next five years, copper demand and supply will remain relatively balanced, but in 2033 we will experience a growing gap. between refining consumption and mine copper production that would exceed 6.6 million tons,” he stated in a presentation.
From the CRU Group, a British consulting firm specialized in mining, they still avoid talking about a supercycle, but they recognize that the rising copper prices have structural foundations and that a growing deficit is expected as the decade progresses.
“This (rally of copper) it is not a small imbalance in the market, but there are underlying structural issues. Towards the end of the decade there will be greater pressure on the price side. It is increasingly evident that there is a deficit situation and it is not seen how those deficits that appear on the horizon can be reversed. However, the trajectory (of the price) is not going to be linear, there are uncertainties as well,” he says. Erik Heimlich, Head of Copper and Zinc at CRU.
The expert explains that the market balance (difference between supply and demand for refined copper) has a strong impact on the accumulation or deaccumulation of inventories and, therefore, on the final price of copper.
“When the market has very low inventory levels, the price tends to be much higher and, in addition, there is a lot of volatility,” adds Heimlich, who specifies that the market is experiencing the combination of a deficit imbalance and the need for an industry that has to invest much more in project development.
But the expert also lists the underlying reasons why, in his opinion, price expectations have been rising in the long term. Along with estimating that the development of mining projects have more uncertainties, risks and are slower to develop than before, he believes that the materialization of these same initiatives are being more expensive than expected in terms of capital expenditure (Capex).
“This means that mining projects are less profitable and that a higher price is needed to stimulate this entry of initiatives (…) That impacts the long-term price,” says Heimlich, who foresees an average price of US$4. .4 a pound for next year.
Despite the stimulating price projections, experts also believe that the impact in Chile of this new copper boom will have strong differences compared to the supercycle of the 2000s.
Today Local production, which reaches 5.5 million metric tons, is stagnant and the internal and external weight of Chilean copper mining has been dropping dramatically.. While in 2013 Chilean copper mining represented 32% of world production, last year it reached 25%, due to lower deposit grades, lower productivity and delays in the expansion of new projects.
For José De Gregorio, current dean of the FEN of the University of Chile, The impact of the new copper boom on economic activity and fiscal accounts will be more “modest” than the cycle of the 2000s, given the problems the country has in expanding its production.
“One dollar more in the price of copper is like one more point of tax revenue, which is relevant, but it is not the magnitude of what we were used to seeing in the 2000s. At that time we even had a surplus of 8% of GDP. This time we see that there are not many mining projects. There may be an increase in investment, but nothing significant that could impact GDP,” says De Gregorio, who has studied copper cycles in depth and was Minister of Economy, Mining and Energy in the government of Ricardo Lagos.
The economist also believes that the price increase will have limited effects on public spending slack for this and the next government.
HoweverDaniela Desormeaux believes that higher copper prices may influence some projects to appear more attractive and materializeand estimates that there will be a positive effect on tax coffers due to greater collection.
“Although it is not possible to modify production in the short term, as occurred between 2003 and 2008 in the first part of the ‘supercycle’, the effects that a sustained rise in price can have on the economy are very significant, since an increase in tax revenue and its consequences on public debt and spending, such as its effects on the exchange rate, disposable income and consumption, among many others. This, without even thinking about the effects on the acceleration of investments, for which a longer period of good prices is required,” concludes, in turn, Jorge Cantallopts, from Cesco.
