With the geopolitical tumult of the last few years, the ever-evolving landscape of commodities investing has never been so exciting.
And amid this fold of lucrative possibilities, few of them shine as brightly today as those of copper.
Indeed, as the world charges towards a greener future, the demand for this versatile metal has ignited a revolution.
Its unique properties and a surge in global demand have set the stage for an intriguing narrative of growth and opportunity.
But before looking at why copper prices could rise exponentially, let’s first examine why this humble material has the Earth’s economic superpowers clamoring at its feet.
Understanding the Vital Role of Copper
Although copper has been known to mankind for over 10,000 years, the substance now serves as a crucial element in the electric vehicle (EV) market, one of humanity’s most modern innovations.
Its unparalleled electrical and thermal conductance properties – not to mention its sturdiness and pliability – render it an indispensable material for the industry’s transition to sustainable transportation.
For instance, copper is heavily utilized in the wiring systems of all electric vehicles. Its capacity to transmit electricity with minimal resistance makes it a perfect selection for conveying electrical power from the battery to different vehicle constituents, such as the traction motor and brakes.
Not surprisingly, copper also plays a critical part in the manufacturing of EV batteries, which are the core of any electric automobile. Copper is employed in the battery’s current collectors, allowing the interlinking of its cells and making way for the progression of electrical energy. The exceptional conductance of copper optimizes battery functionality, guaranteeing effective power transmission and broadening the vehicle’s driving range.
With the growing demand for electric vehicles, there’s a concomitant increase in the necessity for charging infrastructure, such as charging stations and cables.
In fact, copper’s ability to handle high currents makes it an ideal material for fast-charging applications as well.
Furthermore, its thermal conductivity properties make it invaluable for managing heat in electric vehicles. Heat generation becomes a concern as EVs are used, and copper’s exceptional thermal conductivity allows it to effectively combat that, contributing to the car’s longevity and overall performance.
The expanding electric automobile market is therefore an important catalyst for copper demand. According to the consulting company Wood Mackenzie, electric vehicles can comprise up to triple the copper of traditional internal combustion engine vehicles.
With administrations across the globe adopting cleaner transportation alternatives, the need for electric automobiles is anticipated to skyrocket.
This shift towards electric mobility extends beyond the passenger space, encompassing commercial vehicles such as buses and trucks. These likewise depend on copper-intensive systems, with the broader adoption of EVs amplifying the growth opportunities for the material as a whole.
Another prominent area where copper finds its use is in the generation of renewable energy.
For example, wind turbines heavily rely on copper to produce rotor systems, electrical wiring, and power transmission cables. On top of that, copper is essential in the wiring and busbars of photovoltaic solar panel modules, allowing for efficient electrical current flow and minimizing power losses.
Supply Mismatch in the Copper Trade Right Now
Because of the increase in demand resulting from the popularity of electric automobiles and other eco-friendly technologies, the copper industry has witnessed a tightening of the market of late.
Indeed, this growing need for the metal has caused a notable upswing in the number of copper projects worldwide, which are pivotal to satisfying its escalating necessity. These projects – often called “greenfield” ventures – encompass the creation of novel mining schemes rather than simply expanding or upgrading preexisting ones.
Consequently, specialists at McKinsey expect that copper demand will escalate to about 36.6 million metric tons by 2031, meaning the success of the sector will hinge on these newly-minted sites.
Interestingly, as of 2020, Peru and Chile held the top two positions among copper-producing nations, contributing to roughly 47% of global copper exports.
However, environmental regulations and the current political backdrop of the region are starting to pose increasing threats and could impact the countries’ output and potential profits.
Despite this, several new copper projects are already under development. Among the more significant ones is the Quellaveco copper mine in Peru, which is poised to generate 300,000 tonnes of copper annually.
That said, developing greenfield initiatives comes with its own set of problems. Creating a fresh mining site from scratch is a complex and expensive procedure requiring several technical competencies. Besides, they usually encounter environmental and social barriers, with disputes over land use and opposition from local communities typical of the stumbling blocks involved.
To counter these challenges, mining enterprises have progressively embraced sustainable and ethical approaches by prioritizing the reduction of their environmental impact.
Is Copper A Buy?
Even with these efforts to increase copper production, there will still be a massive shortfall in output from now on.
To illustrate this, it’s estimated that six times more copper is needed to run many of the renewable energy systems in operation today. Given that these systems account for almost one-quarter of the world’s power, you can see how much the demand for the raw material will dwarf the industry’s capacity to supply it.
And as every investor knows, when supply falls – and demand goes up – the cost of a commodity explodes.
Fortunately, copper futures have been declining since the start of the year – meaning that now may be a good time to position yourself for the burnished metal’s almost inevitable renaissance.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.