"Sometimes the numbers just don't work, and when unconstrained modelling results in a [circa] 9 million tonne supply-demand imbalance in the copper market for 2030, a change of approach is needed," they said in a note this week. 

 

"Having updated our end-use analysis around copper's role in decarbonisation, even maxing out the realistic project and scrap response doesn't yield enough supply. 

 

"Thus, we see substitution as the only viable solution, meaning a high through-cycle copper to aluminium ratio looks inevitable."

 

Hamilton and Berman argued that of the 8.3 million tonnes of production BMO had identified in new projects, only some 4Mt could be considered likely to contribute to the 2030 base case. They said while ex-China demand forecasts was likely overegged based on questionable energy-transition policy leadership in the West, and there would be an increase in scrap copper consumption, substitution for around 1.5Mt would be required by 2030, regardless of price increases.

 

"Rather than a simple ‘incentive price', we have aimed to estimate a through-cycle price needed to bring the copper market towards balance by 2030," Hamilton and Berman said.

 

"This is done via both encouraging supply and, importantly, removing the requisite demand necessary to ensure we don't run out of copper."

 

The necessary demand quenching was expected to come to the introduction of aluminium as a replacement. 

 

"We anticipate that a copper to aluminium ratio of 3.6:1 may be needed," they said.

 

Hamilton and Berman said if price levels were to be sustained at current levels, there would be a risk of undermining future copper demand "too fast and too soon". 

 

"As such, a 2022 price pullback as demand eases may not be a bad thing for the long-term health of the copper industry."