Dr. Copper: The Once and Future Metal
Copper possesses many wonderful characteristics. It is plentiful, relatively inexpensive, and possesses many good metallurgical properties. This endeared the metal over 100 years as one of the critical metals for economic growth. For Copper goes into everything. It goes into industrial equipment, other equipment, transportation, building construction, and infrastructure, everything that makes the modern economy work. Given this role in the economy, it should not stand as a surprise that demand exploded over the past 20 years as China and other Emerging Economies modernized their countries industry and infrastructure. This allowed Copper demand to grow at 5% or more in many years between 2000 and 2017. But an economy can only build out this modern structure once. Once it is built, an economy only needs to replace things and create incremental structures to support its economy. Demand growth for Copper and other basic materials slows, fundamentally, as the needs of an economy matures.
However, despite this slowing in fundamental demand growth for infrastructure, manufactured goods, building construction, and other needs of the Emerging Economies, Copper appears set to live a second life. This life will spring from the coming explosion in Electric Vehicle (EV) production. While a lot of technology goes into an Electric Vehicle, EVs are basically a rechargeable battery on wheels with electricity flowing everywhere. With Copper’s key role in electrical transmission, it turns into the conductor of choice for short range transmission. And an Electric Vehicle needs plenty of transmission. A traditional car, running on an internal combustion engine, uses 20 kilograms (kg) of Copper. But an EV, running on electricity, uses 80 – 100 kg of Copper per car, a 4x to 5x multiple. In 2018, there were 70+ million cars produced and over 22 million commercial vehicles built. Assuming commercial vehicles use the same amount of Copper as cars, which represents less than their actual use, and assuming only one third of the market becomes EV by 2030, creating 31+ million annual market for EVs, then incremental Copper demand from just EVs would represent 15+ million tons of demand. Today, the Copper market totals only 24 million tons annually. This means that just from Electric Vehicles, Copper demand will grow at 4.5%+ per annum. And assuming some demand growth as economies around the world continue to expand, Copper demand should grow at more than 5% per year for the next decade, truly a second life. And while it is estimated that one third of this demand will be met by recycling Copper from EVs at the end of their estimated life of 10 years, this still represents growth of almost 50% in the amount of copper that must come from mines that don’t exist today.
For Copper, the slowing in Emerging Market growth appears a red herring. Fundamental demand forces continue to gather that will drive continued strong growth for the red metal over the next decade. And with Electric Vehicles coming into their own over the next few years and mine supply growth limited, Copper should enjoy a bright shiny future, despite a likely recession over the next few years. With these fundamentals strong and 2030 on the edge of the horizon, Copper appears set to continue as The Once and Future Metal. (Data from The International Copper Association and Jefferies, LLC coupled with Green Drake Advisors analysis.)
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