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BMO Raises Long-Term Forecast For Copper

Kitco News

(Kitco News) - The Bank of Montreal (BMO) has raised their long-term equilibrium price forecast for copper  to $3.25/lb, in line with current prices, citing higher demand growth for copper from the emerging prominence of renewable energy.

“Changing long-run commodity prices should be a rare event, and should only take place where there is a marked shift in the future outlook. In our view, that event is the step-change we expect in demand expectations driven by renewables and electric vehicles,” the bank said in a recent research report.

According to BMO’s research, major copper demand will stem from solar and wind power installations, both of which are copper intensive. The automotive sector would also be important for growth as more electric vehicles hit the roads.

“Our research shows that renewable energy is the largest single driver of copper demand growth over the coming years, owing to the need to connect significant numbers of small-scale electricity generation units into the grid,” the report said.

BMO projects that due to copper’s importance in both solar and wind energy, demand is expected to grow at a double-digit compound annual growth rate (CAGR) over the coming years. In particular, solar panels alone are expected to add 2.5 million tonnes per annum (mtpa).

Analysts also noted that on the supply side, a deficit is likely to occur over the next two years as supply growth stalls. On a 12-24 month view basis, the researchers forecast prices to go above their long-term equilibrium, bringing copper both long-term and short-term appeal.

“There are many moving parts to copper analysis, but taking into account our increased demand forecast and balancing this with expected trends in scrap recovery, existing mine output and substitution results in a copper market deficit averaging over 5mtpa during 2025-30,” the report said.

The report added that while the electrification of vehicles is an important factor in copper’s long-term growth story, the more significant driver remains renewable energy. The number of solar and wind facilities globally is expected to grow 10-14% through 2025, said the bank.

“We believe that this facilities growth will translate to equivalent growth in copper demand. The amount of copper used in solar assets ranges from 4-5kt/GW, while onshore wind has a similar midpoint of 4.5kt/GW but has a wider range of 2.3-6.8kt/GW,” BMO explained.

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