Copper is scarcer than many investors currently realize

The fact that the global copper market is facing a massive supply shortage in the coming years is not news to most commodity investors. Nevertheless, many are probably still not fully aware of the explosive nature of the situation. Numerous analysts are warning of a massive shortage and Bank of America is using the copper stocks available on the futures exchanges to illustrate how tight the situation already is today and how dramatically copper stocks will continue to fall by 2026.

Behind the world’s major futures exchanges is a system of warehouses. They are designed to ensure that the commodities traded on the exchanges are always physically available. What should actually be a matter of course is not, however, because on the one hand, contracts are not only bought on the futures exchanges by those who are actually interested in the delivery of the ordered commodity at a later date.

However, even if the number of contract buyers who want physical delivery at the end is significantly lower for this reason, this does not mean that all delivery requests can ultimately be fulfilled, as warehouses are emptying at a rapid pace.

Only a single day’s global supply left in 2026?

In 2019, the global copper reserves on the futures exchanges were still sufficient to cover the expected global copper demand for 20 days. It is rightly debatable whether a copper supply of just 20 days is sufficient for a world that relies on copper as much as ours does. However, it is indisputable that the situation back then was nothing short of paradisiacal compared to today, as copper reserves have since shrunk to just four days.

There can be two reasons for the increasing depletion of stocks. On the one hand, producers may be responsible if they no longer produce enough copper and place it in stock. However, a massive increase in consumer demand may also be responsible for the massive depletion. Sooner or later, this will also lead to copper stocks dwindling.

Both reasons are currently responsible for the growing drama, with the persistently high demand for copper indeed being a major reason for the sharp drop in inventories. However, the drama is by no means over yet, because if the trend of recent years continues unchanged, the Bank of America predicts that copper reserves will even dwindle to just one day of expected global demand by 2026.

The copper price will react massively

This enormous decline clearly shows how vulnerable the supply chain has become. The copper market is therefore facing a massive supply shortage. Demand is currently expected to exceed available supply until 2026. However, if demand exceeds supply and there are no longer any large stocks to fall back on, a rise in the price of copper is inevitable, as the industry will want to secure its copper requirements, at any price if necessary.

The massive shortage is being driven, among other things, by the rapid growth of artificial intelligence and the associated development and expansion of data centers. The transition to green energy and drive technologies is also playing its part in ensuring that the copper supply can no longer keep pace with the sharp rise in demand.

The US investment bank Goldman Sachs expects global supply from copper mines to increase by only 2% in 2024. This anticipates a significant decline in production compared to previous forecasts and the weakest growth since 2020.

AI data centers as a driver of demand

At the same time, Goldman Sachs states that AI data centers require significantly more copper than conventional data centers. According to estimates, they alone could consume up to 80,000 tons of copper in 2024. However, Goldman Sachs analysts expect demand from this segment to double to 160,000 tons by 2026. The bank therefore anticipates a deficit of 454,000 tons in 2024 and expects the excess demand to rise to 467,000 tons in 2025.

The shortage could become noticeable as early as the 4th quarter of 2024. In order to counteract this shortage and create incentives for long-term mining investments, Goldman Sachs believes that copper prices may have to rise to USD 15,000 per tonne by 2025. Bank of America is similarly concerned. It forecasts an average copper price of USD 10,750 per tonne in 2025, rising to USD 12,000 per tonne by 2026.

Mining companies are relying on takeovers and expansion projects to meet rising demand. However, putting new mines into operation is a very time-consuming process. It is not suitable for quickly bringing supply and demand back into balance. The situation therefore underlines the need for increased investment in copper mining and recycling if the green transition and the emerging AI industry are not to be suddenly halted due to a lack of copper.

These developers of copper projects can benefit

As annoying as the situation is for copper consumers, it is full of opportunities for copper producers and developers of new copper projects. Investors should therefore take a look at companies like Abitibi Metals, American West Metals, Aston Bay Holdings, Brixton Metals, Core Assets, Nicola Mining, Prismo Metals or Tennant Minerals, to name but a few. Extremely interesting opportunities could potentially arise here in the coming weeks and months.