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The world will need copper in “ever-growing quantities,” to meet the needs of the energy transition, Saad Rahim, chief economist at Trafigura Group, said in an interview March 20.
The commodity trading and logistics giant does not own or operate mines, but it does invest in mining projects worldwide. Rahim, speaking during CERAWeek by S&P Global, said Trafigura is working with counterparties and producers to help create the relationships that will bridge consumers and producers.
“You look at copper, and it’s amazing,” Rahim said. “No one is ever going to say the phrase ‘peak copper demand,’ at least in my career. I mean, every forecast is some version of up and to the right.”
The company has a history of encouraging supply to come online, including in the oil sector, when companies need help with prepayments or financing deals. Rahim said the company has a credit fund within its asset management arm that helps companies access project funding.
“If people can’t get access to financing, maybe we can play a role there that allows some of these projects that we think need to come on to come on,” Rahim said. “We’re just not the operators, but we want to make sure that there’s enough supply in the world for this.”
Currently, copper has what Rahim described as a “30-40-50 problem.”
“Each copper project, on average, is about 30% smaller than it was over the last decade. Therefore, you need a lot more projects and some of them, because of the scale, are going to be run by maybe operators who don’t have the scale or the history that some of the big miners have had,” Rahim said. “You have a 40% problem, which is that your average cost is, at least on the capex front, at least 40% higher than it used to be. The 50% is it now takes at least 50% longer to bring these projects on.”
One looming problem is the time it takes to bring projects into production. Freeport-McMoRan Chairman and CEO Richard Adkerson said permitting was a real problem for copper and other mining projects, and he called on politicians to do more than give “lip service” to the matter. Another issue, Rahim said, is underinvestment, where companies prioritize buybacks and dividends over asset investment.
“It’s not a peak supply argument as much as a peak deliverability argument,” Rahim said. “Can you invest enough in time to deliver when you need it?”
Rahim said he expects a supply-demand gap of 5 million-6 million mt of copper by 2030.
“To put that in context for the oil market, I would say it’s like blowing a 20 million-barrel-a-day hole in the oil market, right? That’s what you’re losing,” Rahim said. “It’s as if you lost Saudi Arabia and Russia at the same time. The problem is, at least in oil, for example, you have a resource that you can bring on relatively quickly….You don’t have that in copper.”