Russia’ war against Ukraine has been a key driving force behind aluminum and nickel price movements, while high energy prices have affected most metals, especially copper. Metal prices are projected to increase 16 percent in 2022 and ease somewhat in 2023. Almost all base metals, including copper, are in deficit this year, with depleting stocks leaving little buffer for the market to weather further disruption. Unsurprisingly, the price volatility looms. The ongoing war between Russia and Ukraine, high energy costs and stricter emissions standards in China have been cited as the main reasons for the continued shortage in copper.
Copper prices reached an all-time nominal high of $10,845/mt in early March. Prices have been buoyed by low inventories and solid demand in China and advanced economies stemming from robust durable goods consumption. The world copper market has been affected by water shortages in Chile (the biggest producer and exporter) and labor disputes in Peru (2nd producer). Copper prices are projected to increase by 8 percent in 2022. Upside risks to the mid-term outlook include further supply disruptions in Russia, while a more severe slowdown in global growth poses the greatest downside risk.
In the longer term, copper will increasingly benefit from growing demand in the renewable (mainly photovoltaics) and electric vehicle (EV) sectors, as well as related grid and recharging infrastructure. Raw materials account for up to 80% of battery costs; therefore, the magnitude of the ongoing metal price rally will likely reverse the long-term trend of falling battery costs in 2022, which are the most expensive component of EVs.
Climbing manufacturing costs, coupled with the lingering autos chip shortage, could curb EV production capacity. They could also dampen EV sales, should manufacturers pass price increases onto consumers, particularly in emerging markets, where governments provide little-to-no subsidies for EV adoption. In particular, the decision by European countries to reduce their dependence on Russian natural gas in line with RePowerEu Plan could increase copper consumption as it provides for accelerating investment in renewable energy. It is a known fact that most renewable equipment components require copper. Thus, higher copper prices could delay installation of new renewable projects and the whole green transition process. Fitch reports that nearly a quarter of planned solar projects in Europe were cancelled in 2021 because of rising raw material costs. In general, world copper market has great prospects for development due to strong demand in renewables sector and supply deficit. Here comes an opportunity for Ukraine. Although, these days copper is not produced in Ukraine, there are nearly 150 copper occurrences in Rivne, Zhytomyr and Volyn regions. Therefore, copper deposits development in Ukraine can become an attractive investment project once the war ends.
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