4 Charts That Explain the Copper Supply Crunch Investors Should Watch
Key PointsImproving demand and the difficulties inherent in increasing supply favor a rising copper price environment.
A supply crunch of copper is on the horizon, with growing evidence that demand will outpace what can be produced. This imbalance could drive up the price of copper, which is an industrial metal critical to the modern economy. Here are four charts that explain the copper supply crunch investors should watch.
The first chart, from an S&P Global report, projects that copper demand will surpass baseline supply starting around 2030. This widening gap begins after 2035, when supply is expected to start declining. The report's underlying data suggests factors like increasing costs, declining ore grades, particularly in the U.S. and Chile, are contributing to this trend.
The second chart presents the deteriorating trend in copper ore grades in Chile, the world's largest copper producer. Chile accounts for almost a quarter of global copper production. This chart demonstrates that as ore grades decline, the cost of mining copper rises, and mining operations may become uneconomical, potentially leading to delays in investment.
The third chart shows S&P Global's projections for copper demand, including the energy transition and AI & data centers sectors. According to this data, more than 60% of the incremental demand for copper from 2024-2040 will come from AI and data centers, and the energy transition. These sectors are likely to have relatively inelastic demand, meaning that even with rising prices, they may continue to consume significant amounts of copper.
Finally, the fourth chart highlights the challenges investors face in anticipating the permitting process for new copper mines, especially greenfield sites. Declining ore grades in mature copper mines in the U.S. and Chile pose a real problem. Despite the potential for technological solutions and substitution effects, permitting and declining ore grades present a real obstacle to increasing copper supply.
However, the overall outlook for copper remains bullish, with the expectation that technological improvements and substitution effects will help mitigate demand growth and improve supply over the long term.
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