S&P Global projects that demand for copper will outstrip supply, and that supply will start declining from about 2035. Falling ore grades in Chile and the U.S. add to the pressure, while AI and the energy transition drive much of the demand.
According to an S&P Global report cited by The Motley Fool, copper demand will exceed baseline supply, with a widening gap appearing after 2030. The same projection has supply starting to decline from about 2035.
Mining pressures weigh on supply
Declining ore grades, rising energy and labor costs, mining complexity and difficulty acquiring permits all pressure supply, the analysis says. Some of these pressures could ease, but the author argues against assuming they will until there is hard evidence.
Ore grades are a particular concern in the U.S. and Chile. Freeport-McMoRan CEO Kathleen Quirk recently told investors that some of the company's U.S. mines had been around for over 100 years and now have low grades. That forces the company to prioritize efficiency, including automation and a low-cost leaching initiative.
Chile is the world's largest copper producer and accounts for almost a quarter of global production. Declining ore grades there are likely to create upward pressure on costs and could price some mining operations out of production, the author writes.
Demand may prove hard to dent
Higher prices usually spur new supply solutions. Freeport-McMoRan's management believes its leaching initiative could ultimately recover 800 million pounds of copper per annum from existing stockpiles, compared with its 2028 copper sales expectation of 4.1 billion pounds.
A high price could also lead to substitution with alternative materials and some demand destruction. However, the author says the impact might be muted, because much of the projected demand may prove non-negotiable. S&P Global's data show that more than 60% of incremental demand from 2024-2040 comes from AI and data centers and the energy transition.
History suggests technology and substitution will mitigate demand growth and improve supply. Recent history also suggests permitting won't be easy, especially for greenfield sites.
Sources: S&P Global, The Motley Fool
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