Goldman Sachs: To stimulate supply, copper prices need to rise to $15,000

Since the beginning of this year, driven by tightening supply, copper prices have continued to rise, with London copper accumulating an increase of over 16% at one point, reaching a two-year high USD 10,000.

In its report on May 3rd, Goldman Sachs pointed out that refined copper supply is increasingly tight, while end demand remains robust, which may lead to a future copper supply shortage.

Given the significant supply gap, Goldman Sachs has raised its year-end price forecast for copper from USD 10,000/ton to USD 12,000/ton, with the full-year average price expectation increased from USD 9,200/ton to USD 9,800/ton, maintaining the forecast of an average of USD 15,000/ton in 2025.

Supply-demand gap continues to widen, potential copper shortage ahead

The report predicts that the growth rate of copper mine supply will slow down in the future, while smelting demand continues to be strong, potentially further widening the supply-demand gap.

We predict that global copper mine supply will grow by 2% this year, lower than the mid-year forecast of 6% last year and the 3% growth rate last year, making it the weakest level since 2020.

In the current tight copper market supply situation, the reaction of the smelting and refining industry to the decrease in spot treatment charges/refining charges (TC/RC) has become a focus of the market's attention. We found that due to the largest exposure of Chinese smelters to spot ore volumes, they are very sensitive to changes in TC/RC, and the decline in TC/RC has gradually begun to curb their production growth.

Furthermore, the report also states that the construction of AI data centers and related power infrastructure is creating new copper demand.

According to the report, copper will be mainly used for data center distribution, grounding and linking, pipelines, and HVAC systems. Due to the significantly higher power density of AI data centers compared to non-AI data centers, the demand for copper is higher.

The report estimates that the copper density of AI data centers will increase from 25 tons per megawatt to 40 tons, resulting in an average demand of 80,000 tons of copper this year:

Previous analysis indicates that by 2030, the global data center capacity will increase by over 70 billion watts. Among them, the additional capacity of AI data centers will reach 23 billion watts, accounting for over one-third.

According to our estimates, the copper demand for non-AI data centers will average 150,000 tons in this decade, increasing slightly to an average of 180,000 tons in the next 5 years; while AI-related capital expenditures and its higher copper demand will generate 80,000 tons of copper demand through this channel this year, doubling to 160,000 tons by 2026, and then stabilizing. The report predicts that copper supply will continue to be tight, with a possible shortage in the fourth quarter.

The latest supply and demand estimates show a deficit of 454,000 tons this year (previously estimated at 428,000 tons), and a deficit of 467,000 tons in 2025 (previously estimated at 413,000 tons).

As the seasonal surplus phase ends, we expect the momentum of supply shortage to continue into the middle of the year, especially in the second half of this year. Given visible stocks slightly above 600,000 tons, the tightening path of copper in the second half of this year still has the potential to lead to a shortage in the fourth quarter.

Key level to avoid shortage: $15,000

In the near term, the report states that copper prices are most likely to consolidate in the short term, but as the physical market digests the short-term reaction to the price increase, this phase will be relatively short-lived.

Looking at the medium to long term, Goldman Sachs indicates that as a solution to the ongoing shortage of mine supply has not been found, the only way to maintain market functionality is through demand allocation.

With the decade-long peak in copper supply coming to an end and extreme scarcity in the concentrate market, how high does the copper price need to be to maintain market functionality?

Goldman Sachs expects that to incentivize long-term mine investment, the long-term average price needs to be maintained between $12,000 and $13,000 per ton; to address the short-term copper scarcity issue, the average copper price next year is expected to reach at least $15,000 per ton. The report states:

While we believe that the incentivized price in the long term is between $12,000 and $13,000 per ton, this is only the average price over the entire cycle, aimed at stimulating long-term mine investment rather than being the price foundation for solving short-term scarcity issues.

We believe that the average price next year must reach $15,000 per ton, taking into account the necessary price level required for waste and substitution effects, in order to control the supply gap at a level that copper inventories can cover.

If prices remain at current levels and these waste and substitution effects are not considered, it would lead to a supply gap of over 1 million tons next year, which is simply not feasible given the existing inventory levels