'The price is not right' for copper: higher prices needed to incentivize new supply, say Stifel analysts

Copper prices need to rise to incentivize the new supply the world needs to meet its decarbonization and electrification targets, according to Stifel GMP analysts.

In a note to clients, analysts wrote that global copper demand is expected to grow from 25 million tons today to 50 million tons in 2035 and 53 million tons by 2050, should the world stay true to its 2050 net-zero targets.

The analysts added that this consumption simply cannot happen if the supply doesn’t exist, which they see as the fundamental reason copper prices need to be higher.

They also noted that projects were getting more expensive, facing more development hurdles, increasing investment risk, and lower returns for investors. As such, they wrote that miners were increasingly wary, further exacerbating the looming supply deficit.

“Higher prices will incentivize more exploration, more new builds, more recycling, and the development of lower grade resources, which were previously viewed as uneconomic,” the analysts wrote.

Copper is currently priced at about $3.60 per pound, a price Stifel’s analysts wrote was reflective of weak demand and uncertainty but they noted it is set to jump as physical inventories are tight.

“Based on our review of numerous projects, we estimate a $4.18 per pound copper price as the minimum price required to incentivize new supply,” they wrote.

“Given the long development timelines for mining projects, which can range from 10 to 30 years, and the exploration and project evaluation costs that need to be incurred, we believe a copper price of $4.50 per pound plus is ultimately required to generate a 15% return over the life of a project.”