Copper project pipeline exceeds 80 billion dollars: why is it still unlikely to ease the shortage?

  • Morgan Stanley believes structural tightness in copper supply and demand is being amplified by trade fragmentation and strategic stockpiling. Uncertainty over US tariffs and Europe’s focus on supply security could restrict cross-regional metal flows, turning an already tight global market into an issue of regional availability.
  • A copper mining capital expenditure cycle is taking shape, with investment in projects awaiting development exceeding 80 billion dollars. But long project timelines and high execution risks mean it takes time to turn the investment pipeline into new supply, making it difficult to close the long-term gap quickly.
  • New resources are also more expensive: in constant 2025 prices, Morgan Stanley estimates capital expenditure per tonne of capacity for new copper projects at 21,312 dollars, above the 16,825 dollars for projects from 2013 to 2025. Rising barriers to expanding capacity, together with the low concentration of the copper industry, strengthen companies’ incentives to acquire high-quality long-term resources through acquisitions.

Both have copper resources, so why do the stocks differ in appeal?

  • Morgan Stanley prefers Glencore because of its resilient free cash flow, room for copper growth through expansions at existing mines, and a significant discount to its sum-of-the-parts valuation. Its trading business also gives the platform strategic value, linking the resource scarcity thesis to both growth and valuation.
  • The bank is also positive on First Quantum: its share valuation has fallen markedly, while growth from new mines, improvements in its Zambian operations and Cobre Panamá-related catalysts offer paths to improvement; measures the company has proactively taken to strengthen its balance sheet provide room to advance these plans.
  • A favourable growth outlook may already be reflected in the share price. Lundin’s Vicuña project increases its long-term copper growth potential, and a final investment decision is expected in the fourth quarter of 2026. However, its earlier substantial rerating relative to peers has already priced in considerable good news, and Morgan Stanley maintains an equal-weight rating.

How will recovering aluminium supply change the high-margin thesis?

  • Unlike copper, aluminium market tightness is easing as production restarts in the Middle East and new supply comes from Indonesia. Production utilisation in China is already high, so subsequent supply changes depend more on the pace of Middle Eastern restarts and Indonesian capacity ramp-ups.
  • Logistical and geopolitical risks may still cause regional shortages, but gradual supply normalisation will weaken the durability of cyclically high premiums. Local delivery tightness and falling industry margins can therefore occur at the same time.
  • Although Norsk Hydro has a cost advantage, its share price already reflects expectations that margins will remain high over the long term. Given downside risks to demand, Morgan Stanley maintains an equal-weight rating; for Rio Tinto, the bank is also concerned about aluminium margins returning to normal, earnings being heavily weighted towards iron ore, and limited room for copper growth, and maintains an underweight rating.

Why does the improvement for European steelmakers come mainly from policy?

  • Compared with the previously more open import environment, stricter import safeguards and the definitive phase of the Carbon Border Adjustment Mechanism (CBAM) are strengthening EU steelmakers’ pricing power and ability to pass on costs. Morgan Stanley believes this helps steelmakers absorb higher energy costs and improve earnings resilience.
  • Further review of the scope of protection and proposals to extend CBAM downstream could strengthen this framework further. However, near-term demand remains uncertain, and the main basis for improved earnings is the change in the competitive and cost pass-through environment.
  • The bank believes ArcelorMittal and Salzgitter are best placed to benefit from a move to higher earnings levels; SSAB relies more on momentum in the US plate market and earnings resilience in its specialty steel business.