Bottled-up scrap copper supply during Covid-19 lockdown could interrupt bull market for metal

THE surge in the price of copper may be interrupted by a glut of supply from the scrap market, said Bloomberg news.

“Scrap remains plentiful and could be a significant source of supply, at least through next year, said Ed Meir, an analyst at ED&F Man Capital Markets. “This suggests any shortages we could see from the mining side could be offset.”

Whilst scrap wasn’t common during past booms, the current increase is supply is a result of a bottling up of secondary materials during the Covid-19 lockdowns.

“What we’re seeing is that material that might have been held off is coming in,” Mark Lewon, president of Utah Metal Works Inc. in Salt Lake City, told Bloomberg News. He recently bought some bare bright copper wire, one of the most expensive grades of scrap, from a dealer in Wyoming that had hoarded materials since March, said the newswire.

Scrap accounts for about third of global demand, said Andrew Cosgrove, a senior analyst at Bloomberg Intelligence. He added that it will become more important after China recently clarified its import rules on scrap metal shipments allowing producers there to use more scrap instead of the pricier top-grade copper.

Analysts are convinced that the copper price has a clear pathway to further gains for the next five to eight years, partly because new primary supply is difficult to secure. It takes about seven years to permit and develop a new copper mine.

“The bull market for copper is now fully underway with prices up 50% from the 2020 lows, reaching their highest level since 2017,” said Goldman Sachs in a report in December. “This current price strength is not an irrational aberration, rather we view it as the first leg of a structural bull market in copper,” it said.

According to a report by Jefferies analysts, copper demand will “significantly” exceed supply from next year with deficits set to blossom over the next seven to eight years. The multi-year deficits will drive the price of copper inexorably upwards.

Decarbonisation is a major factor in Jefferies’ assessment of increased copper demand. Copper plays a much greater role in the manufacture of renewable applications than in conventional fossil fuel power.

“We forecast copper demand in renewable energy to increase from 997,000 tons in 2020 to 1.9 million tons (Mt) in 2030 in our base case and to 6.4Mt in our bull case,” the bank said. Copper demand in renewable energy would fall to 343,000 tons in 2030 as per the bank’s base case scenario. Copper demand this year is estimated to total just over 20Mt.

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