Oct 7 - The energy transition will have a significant structural impact on many metals markets over the next five to 10 years, particularly copper and nickel, Macquarie analysts said at a metals conference on Oct 7.
Global copper demand is expected to grow at a compound annual growth rate of 2.4 per cent between 2019 and 2026, largely underpinned by the energy transition, leaving a structural shortfall of 579,000 tonnes by 2026 unless new supply is established, said Alice Fox, associate director and commodity strategist at Macquarie.
Marcus Garvey, head of metals and commodities strategy at Macquarie, added that copper demand in the sector is expected to double from 2.25 million tonnes to 4.5 million tonnes by 2030 as electric vehicle penetration increases from 7 percent today to about 40 percent by 2030.
Fox said the copper market was coming out of a period of fairly flat mine supply and entering a period of strong growth averaging about 5.8 percent for projects starting development in 2018 and 2019.
"Committed mine supply will peak around 2024 and then inevitably decline due to grade decline and some plant closures. We included a few possible projects... If we compare that with mine supply to meet demand, we see a potential supply gap of around 5 million tonnes by 2030."
However, she said it was important to note that project approvals were again in progress, with about 750,000 tonnes of new supply approved since December 2020 and 700,000 tonnes likely to be approved in the next six to 12 months.
"If all of this happens, the supply gap we see around 2026 will basically be delayed by another year or so," Fox said.
She added: "We expect the market to remain quite tight [in 2022] and then there will be a period of oversupply of both concentrates and metals as supply from new mines increases, and then we will come back into balance and then there will be shortages again."
In terms of copper price forecasts, Fox said strong medium-term copper supply growth and weak end-user demand are expected to weigh on prices over the next few years before further support is found around 2024-25.
"But... We're seeing very thin inventories of copper right now, so if there are any surprises on the supply or demand side, we could see a period of very sharp price spikes, "Fox said.
Macquarie expects copper prices to average $9,149 a tonne in 2021, up from $7,500 in 2020, but fall to $8,563 in 2022 and $8,000 in 2023 before starting to rise again to $8,250 in 2024, Us $8,750 / mt in 2025 and US $9,250 / mt in 2026.
*** Nickel will benefit from the battery industry
Nickel demand is also expected to rise sharply as the battery industry and stainless steel grow, Garvey said.
Jim Lennon, senior commodities adviser at Macquarie, said the nickel market was expected to shift from a 125-130,000 tonne shortfall in 2021 to a surplus of more than 100,000 tonnes in the next few years, implying a weaker overall price outlook.
"We've seen corrections from close to $21,000 per ton to close to $18,000 per ton, and we expect further weakness in the New Year," Lennon said.
Macquarie expects nickel prices to rise from $17,000 in 2020 to an average of $18,195 in 2021, fall to $17,750 in 2022, $16,500 in 2023 and then climb again to $18,500 in 2025, To $19,500 / ton in 2026.
On the demand side, Demand so far in 2021 has been unexpectedly up 15 percent, or 400,000 tons, driven mainly by stainless steel but also by electric vehicles, Lennon said.
Global sales of plug-in light electric vehicles are expected to rise from 3.1 million in 2020 to 6 million in 2021, 12.5 million in 2026 and 21.7 million in 2030, according to S&P Global Platts.
While stainless steel accounts for 70 percent of demand, 10 times what batteries will demand in 2020, Lennon says batteries will be the main driver in the next decade, and despite the uncertainty around battery chemistry, nickel will be the main beneficiary of the ev revolution.
Overall, says Lennon, the decade will see "the highest growth in nickel market [demand] to date - more than 2m tonnes/year of new supply demand between 2020 and 2030". To achieve this, Indonesia will increase supply through the dual expansion of nickel pig iron and high pressure acid leaching in the battery industry, as well as some potential for converting nickel iron into battery grade nickel. In 2021 alone, Indonesia's supply will increase by 300,000 tonnes, higher than the expected 200,000 tonnes, Lennon said.
However, supplies outside Indonesia have faced a series of disruptions, mainly due to a long period of underinvestment, including strikes by Vale in Canada, floods at mines in Russia and massive disruptions in New Caledonia.
"Growth next year is expected to be even higher than this year, in excess of 400,000 mt/y, an increase of more than 18 per cent, driven almost entirely by expectations of a recovery in Indonesian and non-Indonesian supply," Lennon said.
