What can the oil market teach us about the rise in copper prices?

Higher copper prices are unlikely to lead to a technological breakthrough equivalent to the shale revolution in the oil market . Higher copper prices will however incentivise the deployment of fresh capex, lead ing to further greenfield exploration by large companies and liquidity to junior greenfield exploration. The time frame from decision - to - output will remain long - new projects need anywhere between 5 to 10 years to come online (depend ant on whether the project is an expansion or starting from greenfield exploration). The current price action in copper reminds us of a similar dynamic in the oil market – between 2004 and 2007 , the market began pricing - in fears regarding peak oil as Emerging Asian demand surged , driving the oil curve structurally higher despite the market being relatively well supplied over the period. Mirroring this dynamic, o ur view is that rather than reflecting current physical demand, the copper market has been pricing in future demand from the energy transition. As such , we think that there is still some room for higher copper prices, although the pace is likely to slow down and that most of the up move has already taken place. On the other hand, with appreciation driven by anticipated demand growth related to the energy transition, we think that the risk of correction is relatively high if this is anticipated demand is revised lower in the near-term. The two main risk factors are as follows: 1) I f the Chinese SRB starts selling copper , which would reduce Chinese appetite for copper 2) i f the Biden plan is revised substantially lower. We think that $7,500/t could provide a long-run floor as the long-term price incentive for investment in mining projects, which will be needed for the energy transition even if demand growth is revised lower.