#Trafigura Sees More Than 50% Upside in #Copper From #GreenEnergy Supercycle

Trafigura Sees Green Copper Supercycle Driving Prices to $15,000

• Global green revolution to produce deep supply deficit
• Covid-19 boosts ex-China demand, head of copper trading says

The world’s biggest copper trader expects the metal to hit $15,000 a ton in the coming decade as demand from global decarbonization produces a deep market deficit.

Even in the early stages of the Covid-19 crisis, Trafigura Group was betting on the rebound that’s seen copper double over the past year to trade at more than $9,000 a ton. Now the commodities giant sees the metal soaring past record highs above $10,000 as western economies pull out of the pandemic and the green revolution takes hold, head of copper trading Kostas Bintas said in an interview.

So far, the rally has been fueled by virus-related supply disruptions and an unprecedented buying spree in China, consumer of half of the world’s copper. But as global investment in renewable energy and electric-vehicle infrastructure surges over the next few years, Trafigura sees prices of the bellwether raw material marching even higher.

“We thought copper would come out of this Covid crisis stronger, and that’s exactly what’s happened,” Bintas said. “What Covid has done is it has made the rest of the world a major factor in consumption growth, compared to the past, when copper was all about China.”

Trafigura expects the metal to breach $10,000 a ton this year, before entering a range of $12,000 to $15,000 a ton over the coming decade. Other ardent copper bulls including Goldman Sachs Group Inc., Bank of America Corp. and Citigroup Inc. have similarly strong near-term forecasts, but Trafigura has set itself apart with its lofty long-term target.

Goldman expects copper to hit $10,500 a ton within 12 months, while Citi sees it reaching $12,000 next year in its bull-case forecast. In the years to come, that’s likely to become the floor for prices as the industry revalues the metal, according to Trafigura.

“You can’t move to a green economic environment and not have the copper price moving significantly higher,” Bintas said. “How can you have one without the other?”

While China’s urbanization drive lifted prices to a record in the last major bull run, the trading house expects the rest of the world to play a larger role this time around.

“China is very much keeping up its side of the deal,” said Graeme Train, senior economist at Trafigura. “And then in the rest of the world, we really are starting to see some breakout in demand conditions now.”

Demand Surge

Trafigura sold 4.4 million tons of copper in 2020, extending its lead over Glencore Plc as the world’s top trader of the metal. Unlike Glencore, Trafigura has steered away from buying mines -- it’s even looking to sell some it operates in Spain -- and its profits are chiefly derived from activities in physical copper markets.

During the pandemic, Trafigura has been polling customers across the industry, and the responses point to a rare surge in demand across Europe and the U.S., even before green-infrastructure stimulus packages take effect. In Europe, demand has been growing at nearly 5% year-on-year over the first quarter, in a stark turnaround from the depressed industrial growth rates seen for much of the past decade.

“All the feedback we’re getting is that they’re seeing pretty well the best quarter they’ve ever seen, ” Train said.

Growth Engine

Trafigura has seen a resurgence in European copper demand

Source: Trafigura copper consumption survey

Trafigura’s bullish call on copper will be welcomed by investors who’ve been piling into the market over the past year, as well as mining companies that are already enjoying bonanza profits. But it will be a different story for consumers.

Already, some major copper fabricators are warning that soaring prices will prompt buyers to look for alternatives, such as aluminum in conductive wiring. High prices will also incentivize scrap dealers to ramp up collection.

Stocks Depleted

Still, Trafigura believes the strain on supply will be too great to avert a price spike as the green revolution takes hold.

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Away from futures markets, Trafigura also expects some profound changes in the physical industry as the market moves deeper into deficit. Processing fees charged by smelters to turn mined ore into finished metal are already at the lowest since 2010, and they could soon fall to zero, or even turn negative, Bintas said.

While that would put severe strain on smelters’ profitability, the tight supply of refined copper will spur a rally in shipping premiums paid by customers. Byproduct prices are also likely to rise, helping to partially offset the impact, he said.

The looming green revolution has bolstered the outlook for many industrial metals, prompting some analysts to call the start of a new supercycle in commodities markets. But Trafigura says copper’s tight supply dynamics set it apart from the pack, and underpin the trading house’s bold call on prices.

“I’m not sure about the commodities supercycle, but I’m 100% sure about the copper supercycle,” Bintas said.

Read the whole piece on Bloomberg here: Trafigura Sees Green Copper Supercycle Driving Prices to $15,000