One of the world's largest metals and oil traders is doubling down on the metals business as it expects demand for materials such as copper, aluminum, and nickel to soar with the Chinese reopening and the energy transition amid an already tight supply of some base metals.
In a recent trip to China, Trafigura's chief executive Jeremy Weir met with representatives of Chinese trading firms and metals associations to discuss joint ventures and deeper cooperation, Bloomberg reports.
The focus on China makes sense for one of the world's top metals traders as Chinese demand is set to drive base metals consumption and as metals processing capabilities have been concentrated in China for decades.
Trafigura sees increased business opportunities in base metals in China, Weir said at the China Nonferrous Metals Industry Association in Beijing at the end of March.
While Trafigura says it remains committed to building its presence in the fast-growing battery metals markets, it is also doubling down on base metals and sees copper and zinc as the commodities that could see the largest price spikes as inventories are low.
Copper prices are likely to hit a record high in the next 12 months, Trafigura has forecast recently, citing the rebound in China's economy and short supply. Related: Middle East Oil Prices Jump After Surprise OPEC+ Cuts
Kostas Bintas, global co-head of metals and minerals at Trafigura, told a Financial Times event last month that copper could rise to its previous record of $10,845 per ton and even top it to trade at $12,000 per ton.
"I think it's very likely in the next 12 months that we will see a new high," Bintas said at the FT Commodity Global Summit. "What's the price of something the whole world needs but we don't have any of?"
As early as December 2022, Trafigura warned in its FY 2022 earnings report, "Even after several new projects come online in 2023, we expect to see increasingly large supply deficits and for a tight market to become the new normal for copper."
At the World Economic Forum in January, Trafigura's Weir said, "If we want to reach net zero by 2050, we need to have two-thirds of energy from renewable sources by 2030. In that scenario, we need a 20% increase in production per annum of copper."
"We see the same thing in aluminium and zinc because you require these metals to build solar and windfarms infrastructure," the executive added.
According to Weir, metal inventories have drawn down to a "fairly critical stage."
More recently, he said that Trafigura's observations on the ground in China suggest that there was already a pull for metals from the world's top commodities market.
Even the more conservative people in China are more optimistic about the outlook for Chinese economic growth and metals demand, Weir said last month in an interview with Bloomberg TV, just before the banking sector scare shook markets in the middle of March.
Growth in demand for metals is coming not only from China but also from developed economies, thanks to increased consumption as the U.S. and Europe push on with the energy transition, Weir said.
The issue with metals supply is that there is a long lead time from investment decisions to mining and processing, he noted.
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"Metal processing has been concentrated in China for the last three decades, and it now has to expand out of that footprint for many reasons," Weir told Bloomberg TV. "The problem is there's a long lead time for these things."
Weir also warned that tight supplies could threaten the pace of the energy transition.
"It's one of my biggest fears with this energy transition: Actually, can we transition, given the supply tightness?"
By Tsvetana Paraskova for Oilprice.com
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