Copper Outlook 2024: Surging Demand Meets Supply Constraints

Copper has been making headlines lately due to its soaring price and growing importance in the development and manufacturing of emerging technologies. In this article, we will explore the reasons behind coppers recent price surge and it’s potential as an investment opportunity, along with the challenges surrounding this commodity.

Copper was the first metal used by humanity and acquired its modern use in the 19th century as a superb conductor of electricity. Historically, the construction industry has been the largest consumer of copper, utilising nearly half of the global supply for various applications such as electrical wiring, plumbing, and roofing. The metal’s excellent electrical conductivity, durability, and resistance to corrosion make it ideal for these purposes.

However, in recent years, copper’s role has expanded significantly due to its importance in technologies central to the energy transition. Electric Vehicles (EVs) require up to four times more copper than traditional internal combustion engine vehicles. As the number of EVs increases, so does the demand for charging stations, which rely heavily on copper for their electrical components and wiring. Additionally, copper is essential in the manufacturing of Solar Panels and is heavily used in solar farms for power generation and distribution networks. Furthermore, copper is vital in the construction and operation of wind turbines and batteries, particularly lithium-ion batteries, which are extensively used in electric vehicles and renewable energy storage systems.

The shift towards these new technologies highlights copper’s importance in the global move towards more sustainable and renewable energy sources. Western governments are under increasing pressure to cut carbon emissions, reinforcing the demand for clean energy. In 2021, the United Nations said that they expect to see the largest wave of infrastructure growth in human history: three-quarters of the infrastructure that will exist in 2050 has yet to be built and so copper’s strategic importance will only grow, reinforcing its status as a vital material in the modern economy.

This increased demand poses both opportunities and challenges for the  copper industry and it’s current supply chain.

Over the last decade, the copper industry has faced significant challenges that threaten its ability to meet the growing global demand:

• Copper reserves have plummeted by over 95%
• Exploration budgets have declined by more than 50%, with no major new copper mines discovered since 2007
• The International Energy Agency estimates that it takes at least 16 years, and often much longer due to permit and government approval delays, from the discovery of a new copper deposit until real production

Moreover:

• Trade policies and geopolitical relations play a critical role in shaping the copper supply chain, impacting prices and availability on a global scale
• The high concentration of copper mines in Chile and Peru further contributes to potential supply instability

Mining copper also requires significant upfront investment in:

• Exploration
• Land acquisition
• Mine construction & equipment
• Infrastructure, often in remote locations

To finance these costs, mining companies incur large debts by borrowing money or issuing bonds. If copper prices drop, mines fail or produce less than expected, these debts can become almost unmanageable, leading to:

• Large financial strain
• Bankruptcy
• Asset sales at low prices
• Reduced production
• Delayed expansions

This financial instability not only affects mining companies but also deters future investment and lending for new copper projects.

To address these challenges sustainable mining practices and the development of efficient recycling methods are crucial to meet the growing demand for copper without depleting natural resources. However, while efforts are underway to improve copper recovery from existing mines and recycle copper from discarded equipment, it is extremely unlikely that these measures alone will meet the growing demand. Current analysis of trends suggests that there will be a shortfall of approximately 20% by 2035, and this supply shortage could result in a sharp increase in copper prices.

While copper is integral to the energy transition and infrastructure development, the supply squeeze could change over time. Due to the difficulties in extracting copper, alternatives are being explored, which could alter the current supply challenges.

Aluminium has been identified as a potential alternative and is much cheaper than copper. It is also lighter and denser which means that more cable can be produced from a metric tonne of aluminium than copper. However, it is not a perfect substitute as it does not conduct electricity as well as copper and is brittle. Consequently, it is less efficient, and more aluminium must be used to pass the same current as copper, which results in larger cables.  While this is not ideal for many developments in the West, for developing countries such as those in Africa, this large reduction in product cost and increased labour may be a worthwhile trade-off for them.

Innovative materials like Galvorn, developed by DexMat with funding from NASA and the US Department of Energy, are emerging as potential alternatives to copper. Made from splitting hydrocarbons in petroleum and natural gas, Galvorn is highly conductive, lighter, more durable, stronger, and flameproof. Crucially, it is carbon-negative, storing carbon long-term and reducing its contribution to global warming. DexMat plans to increase Galvorn’s production capacity by 20 times in 2024/25, making it a promising copper alternative to watch.

As the world transitions towards a more sustainable future, copper’s importance in emerging technologies cannot be overstated. However, it’s supply constraints pose significant challenges that must be addressed through improved mining practices, recycling efforts, and the exploration of innovative alternatives. While the long-term fundamentals appear very positive, investors should carefully navigate the copper market’s inherent volatility through diversification and/or active management strategies.

• Demand Surge: Copper is crucial for electric vehicles, solar panels, and wind turbines, driving up demand.
• Supply Challenges: Exploration is down, reserves are dwindling, and new mine development is slow.
• Price Impact: Potential supply shortage could lead to significantly higher copper prices by 2035.
• Alternatives: Aluminum is a cheaper option but less efficient. Galvorn, a new carbon-negative material, is a promising alternative.
• Investment: Copper’s future looks bright, but the market is volatile. Diversification is recommended.