Australian-UK resources group BHP estimates that declining grades will remove around 2mn t/yr of global copper mine supply by 2030, with resource depletion potentially removing an additional 1.5mn-2.25mn t/yr by that time.
"Our view is that the price setting marginal tonne [of primary copper] a decade hence will come from either a lower-grade brownfield expansion in a lower-risk jurisdiction, or a higher-grade greenfield in a higher-risk jurisdiction. Neither source of metal is likely to come cheaply," it said.
Grade decline, resource depletion, increased input costs, water constraints and a scarcity of high-quality development opportunities are likely to result in the higher prices needed to attract sufficient investment to balance the market, according to BHP, which produced 1.72mn t of copper in the July 2019-June 2020 fiscal year and has issued guidance of 1.48mn-1.64mn t for 2020-21.
Subject to caveats on precise timing, BHP thinks that a structural copper deficit is expected to open up in the mid- to late 2020s, which may see some sustained upside for prices.
The London Metal Exchange (LME) three-month copper has recovered strongly to around $6,500/t in late August from $4,600/t in late March, driven partly by Covid-19 disruptions in Chile and Peru, the world's two largest copper exporters.
In the medium term, the expected arrival of new supply from Peru, Chile, central Africa and Mongolia in 2021-24 could temporarily tilt the market into a modest surplus in one or more of those years.
Longer-term demand for copper from traditional consumers is expected to be "solid", while broad exposure to the electrification mega-trend will also provide an "attractive upside".
Commenting on nickel, BHP said the recent price recovery may have gone beyond underlying fundamentals with a strong ramp-up in Indonesian nickel pig iron (NPI) contrasting with the constrained supply situation in copper concentrates.
"The observed discount for NPI versus LME base prices is possibly offering a more accurate picture of the state of play in the physical market," it said.
Showing a similar trend to copper, the LME three-month nickel has risen to around $14,600/t in late August from $11,160/t in late March, partly because of Indonesia's ban on nickel ore exports from 1 January.
While two thirds of nickel demand continues to come from stainless steel, BHP sees "a long-run case" for stainless steel and the electric vehicle battery industry to each account for half of the nickel market.
BHP produced 80,100t of nickel in 2019-20 and has issued guidance of 85,000-95,000t for 2020-21.
