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Shortages, Low Stocks Risk Copper
Spiking to New Records

(Reuters) – Shortages of copper and dwindling inventories are likely to propel prices of the industrial metal to levels beyond current record highs, unless scrap supplies rise significantly.

Benchmark copper on the London Metal Exchange hit $10,747.50 a tonne on Monday, surpassing a record of $10,190 hit in February 2011, for a gain of 37% this year.

"The copper market is tight, inventories are trending lower. There is a risk that prices of the red metal spike to $13,000," said Bank of America analyst Michael Widmer. "If our expectation of increased scrap supply, a non-transparent market, does not materialise, inventories could deplete within the next three years, giving rise to even more violent price swings that could take copper to $20,000."

Bank of America expects a deficit of 186,000 tonnes this year and a shortfall of 369,000 tonnes in 2022, followed by surpluses in the two years after.

Scrap typically accounts for about a third of the roughly 30 million tonnes of annual global copper supplies. As copper prices rise the flow of scrap accelerates as the market attempts to cover the gap between demand and supply.

That gap will also partly be covered by inventories in LME registered warehouses, those monitored by the Shanghai Futures Exchange and in bonded warehouses in Shanghai. Stocks are also held by producers, consumers and merchants.

Beyond 2024, as the world moves towards net-zero carbon emissions, copper demand from industries such as makers of electric vehicles is expected to soar and shortages are expected to re-emerge.

Macquarie assumes pure battery vehicles (BEV) on average contain 72.5 kg against 22.5 kg for internal combustion engine (ICE) cars, while for hybrids (HEV) and plug-in hybrids (PHEV) the number is 37.5 kg.

It expects total global auto sales to rise towards 105 million by 2025, with combined BEV, PHEV and HEV light vehicle sales penetration rising to about 30%.

"We expect total automotive copper demand to rise from a pre-COVID peak of 2.3 million tonnes in 2018 to 3.2 million tonnes in 2025 and potentially to above 4 million tonnes by 2030," Macquarie analysts said in a note.

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