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The energy transition is due to have a
dramatic structural impact on a number of metals markets, especially copper and
nickel, in the next five to 10 years, Macquarie analysts said at an Oct. 7
metals media briefing.
Alice Fox, Macquarie associate director,
commodities strategy, told the briefing that global copper demand was expected
to grow at a compounded annual growth rate of 2.4% from 2019 to 2026, primarily
supported by the energy transition, which could lead to a structural deficit of
579,000 mt by 2026, unless new supply was established.
Fox said the copper market was coming out
of a period of fairly flat mine supply and heading into a couple years of
strong growth of around 5.8% on average from projects that started development
in 2018 and 2019.
"Committed mine supplies will peak
around 2024 and then it will inevitably come down due to grade decline and some
closures. We add in a portion of the possible and probable projects ... and if
we compare that to the required mine supply that will meet demand, we are
looking at a potential supply gap of around 5 million by 2030," Fox said.
However, she said it was important to note
that project approvals were again being processed, with around 750,000 mt of
new supply approved since December 2020 and an estimated 700,000 mt to
potentially be approved over the next six to 12 months.
"If that all comes online, that supply
gap, which we've seen developing around 2026 will get pushed out basically by
another year or so," Fox said.
"We expect the market to remain fairly
tight [in 2022] and then move into a period of surplus on both concentrates and
metals as that new mine supply comes on, and then we'll move back into balance
before going into deficit again," she added.
Looking at copper price forecasts, Fox said
the combination of strong medium-term growth in mine supply and weakening
end-user demand was expected to place pressure on prices in the next few years,
before finding further support around 2024-25.
"But ... what we're seeing in copper
is very thin inventories, so if we get any surprises either on the supply or
demand side, we could see a period where prices spike up quite
dramatically," Fox said.
Macquarie forecast copper to achieve an
average of $9,149/mt in 2021, up from $7,500/mt in 2020, but fall to $8,563/mt
in 2022 and $8,000/mt in 2023, before starting to move higher again to
$8,250/mt in 2024, $8,750/mt in 2025, and $9,250/mt in 2026.
Nickel to benefit from battery sector
Garvey said nickel demand was also expected
to see a large increase due to the growing battery sector, as well as from the
stainless steel sector.
Jim Lennon, Macquarie senior commodities
consultant, said the nickel market was expected to swing to a surplus of more
than 100,000 mt/year over the next few years from a deficit of 125,000-130,000
mt in 2021, which in turn meant a weaker general outlook for prices.
"We've already seen corrections from
close to $21,000/mt to close to $18,000/mt and we expect further weakness to
develop into the new year," Lennon said.
Macquarie forecast nickel prices to rise to
an average of $18,195/mt in 2021 from $17,000/mt in 2020, falling to $17,750/mt
in 2022 and $16,500/mt in 2023 before climbing again to $18,500/mt in 2025 and
$19,500/mt in 2026.
On the demand side, Lennon said demand had
surprisingly risen 15%, or 400,000 mt, year on year in 2021 so far, mainly
driven by stainless steel, but also by EVs.
Global plug-in light duty EV sales are
expected to rise to 6 million units in 2021 from 3.1 million units in 2020, and
to 12.5 million units in 2026 and 21.7 million units by 2030, according to
S&P Global Platts Analytics.
While stainless steel accounts for 70% of
demand and was 10 times larger than battery demand in 2020, Lennon said
batteries were expected to become the main driver over the next decade and,
despite uncertainty in terms of the battery chemistries, nickel would be a
major beneficiary from the EV revolution.
Overall, Lennon said this decade would see
"by far the highest growth [in demand] ever seen in the nickel market --
the requirement in new supply between 2020 and 2030 is over 2 million
mt/year."
To meet this, Indonesia will grow supply
with the dual expansion of nickel pig iron and high-pressure acid leaching for
the battery industry, as well as some potential to convert NPI into
battery-grade nickel.
In 2021 alone, Lennon said Indonesia had
increased supply by 300,000 mt, up from the expected 200,000 mt.
However, supply outside of Indonesia has faced
a series of disruptions resulting largely from underinvestment over quite a
long period of time, including strikes at Vale in Canada, flooding of mines in
Russia, and large disruptions in New Caledonia.
"Growth projected for next year is
even higher than this year to over 400,000 mt/year -- by over 18% -- driven
almost entirely by Indonesia and the expected recovery in non-Indonesian
supply," Lennon said.