Why Analysts Are Bullish on Copper Prices: Here Are the Reasons You Need to Know

Last November, Panama’s Supreme Court ruled that the nation’s contract for the Cobre copper mine with First Quantum Minerals violated the constitution, leading to the mine's closure. Subsequently, in December, the mining giant Anglo American significantly lowered its 2024 copper production guidance, down from as much as 1 million tons to a range of 730,000 to 790,000 tons.

Meanwhile, Chile, as the world's largest copper producer, has seen its copper output stagnate due to factors such as deteriorating ore quality and water resource shortages caused by prolonged drought in recent years. In addition, resource protectionism and environmentalism are expected to affect mining operations and effective supply in the medium to long term.

Copper is an essential metal for global decarbonization and plays a key role in facilitating the shift to green energy. Electric vehicles are a major source of rapid growth in copper demand, primarily utilized in batteries, motors, high-voltage wiring harnesses and other components. Electric vehicles require significantly more copper than traditional vehicles. According to data from UBS Evidence Lab, the Chevrolet Bolt has 80% more copper content than a similarly-sized Volkswagen Golf. Statista predicts that global EV sales will reach 17.07 million units by 2028, an increase of 66.5% from 2022. This growth is expected to drive a continued rise in copper demand.

The construction of renewable energy infrastructure will also further increase the demand for copper, such as solar energy, wind energy, and grid construction. According to data from the Copper Development Association, a 3 MW onshore wind turbine requires up to 4.7 tons of copper, while offshore wind turbines require even more, about 8 tons per MW. Solar power systems require at around 5.5 tons per MW.

Due to declining average copper ore grades and other cost increases beyond mining, the global copper mining cost center may experience a long-term upward trend, which will support copper prices. Currently, about half of the world's copper mines have been in service for more than 50 years and face the problem of aging mines, particularly in Chile. The decline in copper ore grades will constrain the growth of global copper concentrate supply, increase the difficulty of controlling mining costs, and raise the cost of ore dressing.

The market generally expects the Federal Reserve to cut interest rates in 2024, which will not only help boost economic growth, promote economic recovery, and increase demand for copper, but also lead to a weaker US dollar. As a result, the greenback-priced copper will become more attractive to foreign buyers.