Investment bank giant Goldman Sachs has become super bullish on the outlook for copper on the premise that the red metal is critical to global decarbonisation.
It’s tipping prices to boom in coming years to a staggering peak in 2025 of $US15,000/t ($US6.80/lb).
That compares with the (calendar) average price in 2020 of $US6,186/t ($US2.80/lb), and the metal’s current price which is already in boom time territory of $US9,336/t ($US4.23/lb).
If the investment bank is right, ASX-listed copper producers, developers and explorers are in for some extraordinary times.
There is a caveat on Goldman’s big call in copper prices – there is likely to be some periods of price weakness in the next couple of years as production from new mines under construction create a temporary supply surplus.
But then it is on for young and old as the scramble for copper to power the new “green’’ economy gets going in earnest.
Producers will make money hand over first at $US15,000/t while the developers, which have generally used $US7,000/t prices for planning purposes, will be wetting themselves to get into production.
And explorers will find equity funding for their copper search all that much easier to secure, not unlike the gold stocks explorers which had money thrown at them when gold was doing its thing at prices better than $US2,000/oz.
Small change zero to climate change hero
So what did Goldman actually say?
“The critical importance of securing sufficient raw materials in combating society’s problems has never been more in focus. This importance extends to the next greatest challenge of our time: climate change.’’
“The critical role copper will play in achieving the Paris climate goals cannot be understated. Without serious advancements in carbon capture and storage technology in the coming years, the entire path to net zero emissions will have to come from abatement – electrification and renewable energy.
“As the most cost-effective conductive material, copper sits at the heart of capturing, storing and transporting these new sources of energy.’’
Goldman said that crucially, the copper market as it currently stands is not prepared for that demand environment, and that a combination of surging demand and sticky supply sets the scene for large and open-ended supply deficits from mid-decade.
The firm estimates a long-term supply gap of 8.2Mt by 2030, twice the size of the gap that triggered the bull market in copper in the early 2000s.
“We now project copper to average $US9,675/t in 2021, $US11,875/t in 2022, $US12,000/t in 2023 before a material step-up to $US14,000/t in 2024 and $US15,000/t in 2025. In this context, we upgrade our 12-month target to $US11,000/t,’’ Goldman said.
It is familiar stuff to those who follow commodity prices closely and matches what our biggest copper producer BHP has been saying about copper market dynamics for some time, without a price prediction.
Even for BHP with its diversified commodity portfolio, the impact of a run up in copper prices to $US15,000/t would be dramatic. Compared with last year’s average, a $US15,000 copper price would add $US13.2 billion to BHP revenues, all of which but for tax would flow to the bottom line.
Move over iron ore.
Being a big end of town firm meant Goldman’s equity desk did not go below the ASX copper producers in determining an investment response to the firm’s big call on copper prices. Sandfire was preferred over OZ Minerals, and that was about it.
Garimpeiro’s response to the big call on copper is to rely on a basket of developers and explorers. It is where investors can expect a leveraged response to copper prices making their way to $15,000/t, assuming Goldman hasn’t been on the Kool-Aid.
Here are 10 names followers of the column would be familiar with (so there is no need to go in to too much detail): Caravel (CVV), Coda (COD), Hot Chili (HCH), Inca (ICG), Kincora (KCC), Orion (ORN), New World (NWC), Stavely (SVY), Sunstone (STM) and Venturex (VXR).