What Megatrends Will Impact Copper Demand?

There are three megatrends that are pushing the balance between demand and supply of copper globally. These megatrends are just starting to ramp up and are already showing a heavy effect on the price of copper.

These are the megatrends we need to better understand:

1. Electric vehicles (EVs): 

While currently in terms of volume only 10% of the new vehicles sold worldwide are EV, this is expected to grow to 50% of global sales by 2035, according to Goldman Sachs. Let’s consider that this type of vehicle consumes 3.5 times more copper than ICE (Internal Combustion Engine) vehicles. Governments worldwide are introducing regulations and mandates, many of which target net-zero greenhouse gas emissions, which is driving EV adoption as a priority. But we need to consider not only the usage of copper in the automobile, but also what is required for power transmission to support those electric vehicles. The grid infrastructure necessary to support the expected number of charging stations by 2035 is expected to consume 250% more copper than the decade prior. This copper will be needed regardless of which source of energy is  used.

2. Energy Sector:

The rapidly growing sector of renewable energy, including solar and wind farms, relies heavily on the conductive properties of copper to improve efficiency. Compared to conventional greenhouse emission electricity generators, these systems use much larger volumes of copper. Industry and electricity generation accounts for 40% of the global emissions of greenhouse gases, according to the Copper Alliance. In order to comply with the goals and mandates governments around the world are setting forth, decarbonizing the industry and the power grid will require significant amounts of copper. Energy generation is not the only challenge as renewable energy requires storage systems, such as batteries, to not rely on fossil-fuel-powered backups. Only in North America, energy  will require 6,000 tons per year of copper starting in 2027.

3. Construction Sector/Smart City:

The development of the infrastructure to make our cities smart requires growth in the construction sector as copper is used in IT systems and renewable energy efficiency. The prevalence of high copper intensity heating pumps and electrical heating systems is also expected to boost copper demand.

These megatrends are pushing demand upward but what is happening to the supply side, which is where the problem arises? While there are many copper mines around the world, the outlook does not look positive as expectations are that  there will not be enough copper to cover the projected demand. Jeff Currie, the global head of commodities at Goldman Sachs, flagged this again for the market just recently. “On copper, the forward outlook is extraordinarily positive. We’ll be at the lowest observable inventories that have ever been recorded at 125,000 tonnes.”

Copper is an infinitely recyclable metal, hence the possibility to alleviate the market imbalance is there. Many projects are ongoing to make this process more efficient and also to acquire the amount of purity needed to boost the percentage of recycled metal, lessening the  dependence on newly extracted copper. It is estimated that two-thirds of the copper extracted in the last 100 years, or 690 million tons, is still in use today; during the last decade 32% of copper came from recycled sources. Nevertheless, experts share the same point of view that even with an increase in recycling input, this will not suffice to meet the demand for copper in the coming years.

The projection for the use of refined copper is that by 2050,  demand goes to 5.5 tonsper 1,000 people compared to 1994 when it was  2 tons per 1,000 people.  Current global demand accounts for 25 million metric tons (MMT),rising  50 MMT in 2035 and to 53 MMT by 2050.

This imbalance will certainly have an effect on copper commodity prices levels. During the pandemic, we saw the effect on prices when shutdowns around the world occurred, with the highest price of copper hitting US$10,800 /ton. While prices have taken some steps back, the outlook is that in 2024 we might be trading at US$12,000/ton. Considering that the average value for the past  20 years is US$6,200/ton, the price movement has been very significant already.

This will have an effect, of course, not only on the price but also on availability. Products that have more added value and for which the consumer will be willing to pay a higher price without yielding to a substitute product are the ones that will receive the higher allocation of the metal.

As for the products that are more price sensitive, manufacturers will certainly have to find alternate material solutions to produce their products and continue to serve their markets. Nevertheless, copper is a very difficult product to substitute when talking about its electrical conductivity properties.

Therefore, companies that use copper and cannot substitute the metal in their products will need to take a long-term partnership approach. Scarcity will occur, and the winners will be those companies  that have the metal available and are  able to pay the price for it.