How Will The Current Copper Supply Impact The Markets?

Copper is one of the most ubiquitous, versatile and abundant metals. The red metal, as it's known, is corrosion-resistant, a good conductor of both heat and electricity, and can be molded into any number of shapes, sizes and thicknesses. As a result, people use copper in coins, jewelry, pipes, electric wiring, and musical instruments, among other things.

Copper's use by humans dates back about 10,000 years. When combined with tin, copper produces bronze. This combination kicked off the Bronze Age in about 3000 B.C., helping civilization arise from the Stone Age. When combined with zinc, copper produces brass.[1]

In addition, copper's antimicrobial qualities—it can kill 99.9% of E. coli and other bacteria within two hours of exposure—make it highly suitable for use in medical facilities for door knobs, bed handles and other high-touch surfaces. Its use is actually growing in this industry. In fact, more than 500 copper alloys are registered with the U.S. Environmental Protection Agency.[2]

Modern Uses For Copper

Copper is seen as "the core of the green energy transition," according to Mining.com, a leading news website that covers the global mining and metals industry.[3] In addition to its high level of recyclability, copper is expected to play a major role in the "Green Revolution" of sustainability.

Vehicles

Conventional cars can contain as much as 50 pounds of copper, depending on the size of the vehicle, including brakes, bearings, connectors, motors, and wiring.[4] The average electric vehicle (EV), by contrast, requires two to four times more copper than a conventional vehicle, or about 200 pounds worth, according to a Canadian government report. In addition, EV recharging stations depend heavily on copper.[5]

Robots And Computers

Copper is also widely used in robots, high-speed computers, telecommunications equipment, windmill turbines and solar energy systems.[6]

Nicholas Snowdon, Goldman Sachs's metals strategist, speaking at the World Copper Conference in April 2021, estimated that "nearly US$16 trillion would have to go into green-focused infrastructure to achieve decarbonisation targets." As a result, he predicts that the mining sector, including copper, is "at the start of a supercycle."[3]

Global Supply Of Copper

In addition to its omnipresence in so many things we use every day, the supply of copper is also widely dispersed around the globe. No single country or region holds a monopoly on production or excavation, as is the case with some other commodities, such as petroleum and diamonds.[1]

According to the U.S. Geological Survey, the top five copper-producing countries are Chile, Peru, China, the Democratic Republic of Congo and the U.S. Australia and Africa are also major sources of the metal.[4]

Because it is so widely used and abundant, the copper market is often a good barometer of the state of the global economy. In broad terms, at least, the price of copper—which is widely traded on the world's major metals exchanges—tends to track global economic trends. Although, more concentrated supply-and-demand forces also play a role. For example, China—at the same time one of the world's biggest users and largest suppliers of copper—has played an outsized role in influencing the price of the metal.

At the beginning of the millennium, during the recession and following the collapse of the dot-com stock market bubble, copper was trading at about US$0.75 per pound. That was about half the price it was trading at five years earlier. The red metal spiked to close to about US$3.50 per pound over the next five years or so, eventually reaching close to US$4.00.[7]

Great Recession

However, the Great Recession—it hit the global housing market especially hard—that began in late 2007 would prove to be copper's peak for a while. Between the beginning of 2008 and the beginning of 2009, the price plunged to below US$1.50. It didn't stay there long. Copper's price rebounded strongly over the next three years to about US$4.50 per pound in 2011, which is still at or near its all-time high.[7]

2016-2018

Over the next five years, the metal trended gradually downward as the prolonged global recession ground on. By early 2016, copper slid all the way back to about US$2.00 per pound. That proved to be the bottom for a while, as the price rebounded to above US$3.00 per pound in early 2018, before gradually falling again over the next two years.[7]

COVID-19 Pandemic

Copper's price eventually bottomed out at about US$2.10 per pound in March 2020 as the COVID-19 pandemic hit and the global economy largely shut down in response. This reduced demand for copper as well as the ability of mining companies to extract the ore.[7]

However, that bottom proved short-lived. The price spiked to more than US$4.00 per pound into 2021.[7]

Copper Price Movement In 2021

The price of copper has been somewhat volatile in 2021, trading in a range from about US$4.00 to a peak of US$4.73 in October 2021.[7]

Many of those price fluctuations are due to China, where the COVID-19 pandemic began. Early in the year, power supply restrictions prompted some local governments to ration electricity supply to industrial users, which traders worried would reduce demand for copper. However, the country's central bank subsequently eased monetary restrictions, which analysts believe should increase liquidity that will ease production constraints and induce companies to raise imports.[8]

In addition to being one of the world's largest suppliers of copper, China is also the largest consumer. It accounts for about 43% of global imports.[9]

Copper Market Long-Term Outlook

The outlook for copper is generally positive if not bullish, although that forecast depends to some degree on the path and duration of the COVID pandemic.

According to a report from Mordor Intelligence, the market for copper is expected to grow at a cumulative annual rate of more than 6% between 2021 and 2026. "Increasing demand from construction, electronics, and telecommunication industries are the reasons for the market growth," the report says.[6]

Fitch Solutions, meanwhile, published a report that predicts copper production of copper will grow by an average annual rate of 3.7% over the next decade, from 20 million tons in 2020 to about 29 million tons in 2030. It also notes that rising prices will encourage more output and investments.[10]

Bullish Growth Projections

However, Wood Mackenzie, a global research and consultancy business that covers the natural resources industry, is more bullish. It expects worldwide copper consumption to rise over 250% by the end of the decade, largely fueled by the mass rollout of some 20 million EV recharging stations. It calls copper the "cornerstone" of the EV revolution.[11]

"At the heart of the electric vehicle, (copper) is used throughout because of its high electrical conductivity, durability and malleability," the firm said. "The need for copper is even more significant when it comes to charging stations and supporting electrical grid infrastructure." The firm further predicts that by 2040 "passenger EVs will consume more than 3.7 million tonnes of copper every year."[11]

By comparison, traditional passenger vehicles with internal combustion engines will need just over one million tonnes. Cumulatively, between now and 2040, EVs will consume 35.4 million tonnes of copper, or about five million tonnes more than current demand for traditional vehicles, the firm predicts.[11]

Similarly, Capitalight Research forecasts that demand for copper from electric cars, energy storage and renewable power projects may double to more than eight million tonnes by 2025.[12]

In February 2021, the European Automobile Manufacturers' Association called on the European Union to have one million EV charging stations installed by 2024 and three million before 2030.[13]

Due to such expected growth in demand, Gov Capital predicts that the price of copper could hit US$6.50 per pound by the end of 2022 and jump to US$15.253 by the end of 2025.[8]

Summary

Copper is one of the most widely used, versatile and abundant metals, present in everything from pipes and electric wires, to coins and jewelry. As a result, the price of the "red metal" often serves as a useful indicator of global economic activity. In addition to its already ubiquitous presence in homes, cars and many other things, copper is expected to get a large boost from green technology. It's a large and key component in electric vehicles and recharging stations, windmill turbines and solar energy systems.

References

1

Retrieved 14 Dec 2021 https://geology.com/usgs/uses-of-copper/

2

Retrieved 14 Dec 2021 https://www.visualcapitalist.com/copper-critical-today-tomorrow-and-forever/

3

Retrieved 14 Dec 2021 https://www.mining.com/goldman-doubles-down-record-high-copper-price-within-a-year/

4

Retrieved 14 Dec 2021 https://investingnews.com/daily/resource-investing/base-metals-investing/copper-investing/copper-uses/

5

Retrieved 14 Dec 2021 https://www.nrcan.gc.ca/our-natural-resources/minerals-mining/minerals-metals-facts/copper-facts/20506

6

Retrieved 14 Dec 2021 https://www.mordorintelligence.com/industry-reports/copper-market

7

Retrieved 14 Dec 2021 https://www.macrotrends.net/1476/copper-prices-historical-chart-data

8

Retrieved 14 Dec 2021 https://capital.com/copper-price-forecast

9

Retrieved 14 Dec 2021 https://www.institutionalinvestor.com/article/b1n9p4h5ssr4h7/the-importance-of-copper-in-chinas-economy

10

Retrieved 14 Dec 2021 https://www.miningnewswire.com/report-predicts-strong-growth-for-copper-gold-as-pandemic-is-contained/

11

Retrieved 14 Dec 2021 https://investingnews.com/daily/resource-investing/base-metals-investing/copper-investing/ev-copper-consumption-grow-woodmac/

12

Retrieved 14 Dec 2021 https://www.miningnewswire.com/report-suggests-that-copper-supply-shortage-looming/

13

Retrieved 14 Dec 2021 https://www.reuters.com/article/us-europe-autos-electric-idUSKBN2AB0UG

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