Trafigura, the world's largest copper trader, expects copper prices to hit $15,000 a tonne over the next decade as global demand for decarbonisation creates a severe gap in the market.
Even in the early stages of the COVID-19 crisis, Trafigura Group bet on a rebound in copper prices, which have doubled in the past year to trade at more than $9,000 a tonne.
As Western economies emerge from the epidemic and the green revolution begins, the commodities giant expects copper prices to break through record highs above $10,000, Kostas Bintas, head of copper trading, said in an interview.
The picture
So far, supply disruptions caused by the virus and an unprecedented buying spree in China have helped push copper prices higher.
China consumes half the world's copper.
However, as global investment in renewable energy and electric vehicle infrastructure surges in the coming years, Trafigura believes the price of raw materials, the industry bellwether, will rise further.
"We thought copper would come out stronger in this novel coronavirus crisis, and it did," says Mr Bintas.
"What COVID-19 does is it makes the rest of the world a major contributor to consumption growth, whereas in the past copper was only associated with China."
Trafigura expects copper prices to break through $10,000 a tonne this year and move into a range of $12,000 - $15,000 a tonne over the next decade.
Other copper bulls, including Goldman Sachs Group Inc. (GS), Bank of America Corp. (BAC) and Citigroup Inc. (C), have similarly strong short-term expectations, but Trafigura has high long-term targets.
Goldman Sachs expects copper to hit $10,500 a tonne within 12 months, while Citi, in its bullish forecast, sees $12,000 next year.
That could act as a floor for prices as the metals industry revalues over the next few years, Mr. Toelke said.
"You can't move to a green economy without having copper prices go much higher," Bintas said.
"How can you have one and not the other?"
While China's urbanisation pushed prices to record levels during the last major bull market, the trading house expects the rest of the world to play a bigger role this time around.
"China has largely lived up to its commitments," said Graeme Train, senior economist at Trafigura.
"Elsewhere in the world, we are now really starting to see some breakouts in the demand picture."
A surge in demand
Trafigura sold 4.4m tonnes of copper in 2020, further overtaking Glencore to become the world's largest copper trader.
Unlike Glencore, Trafigura has stopped buying mines and is even looking to sell part of its Spanish business, which makes most of its profits from activity in the physical copper market.
Trafigura's surveys of clients across the industry during the pandemic showed a rare surge in demand in Europe and the US, even before the green infrastructure stimulus took effect.
In Europe, demand rose almost 5 per cent in the first quarter from a year earlier, a stark contrast to the sluggish industrial growth seen for much of the past decade.
"All the feedback we got was that this was their best quarter ever," Train said.
Trafigura's bullish call on copper will be welcomed by investors who have piled into the market over the past year, as well as mining companies that have already made fat profits.
But for consumers, it's a different story.
Some leading copper producers have warned that soaring prices will prompt buyers to seek alternatives, such as aluminum, used for conducting wiring.
High prices also give scrap dealers an incentive to increase their collections.
Run out of inventory
However, Mr Toelke believes that with the green revolution, supply pressures will be too great to avoid a price spike.
Coronavirus 2019 has severely affected supplies of scrap and mined copper, leading to a sharp decline in global stocks over the past year.
With stocks approaching critical levels, any further supply disruptions could start to have a big impact on prices, Trafigura said.
"When you see copper re-pricing in a low inventory environment, what the market is saying is that only the people who really want copper can get it and they're going to have to pay more for it," Train said.
As well as futures markets, Trafigura expects some profound changes in the physical sector as markets move further into the red.
Bintas said the fees smelters pay to process ore into finished products are already at their lowest level since 2010 and could soon fall to zero or even negative.
While this will put severe pressure on the profitability of smelters, the tight supply of refined copper will drive up transport premiums paid by customers.
By-product prices could also rise, helping to offset some of the impact, he said.
The coming green revolution has boosted the outlook for many industrial metals, prompting some analysts to suggest a new supercycle has begun in commodities markets.
But Trafigura said the tight supply of copper set it apart and underpinned its aggressive price forecasts.
"I'm not sure about the commodities supercycle, but I'm 100 per cent sure about the copper supercycle," Mr Bintas said.
