The future demand growth of the global copper market is almost entirely contingent on a rapid green transition driven mainly by the shift to electric vehicles and renewables to combat the climate crisis, Charlie Durant, base metals research manager at London-based CRU Group, a commodity market analysis company, told Anadolu Agency in an interview.
'The green energy transition story for copper is centered around renewable energy, primarily wind and solar, and electric vehicles, along with the likely associated upgrades and new electricity infrastructure,' Durant said. 'CRU believes that these will drive nearly all the 1.5% per annum growth in refined copper over the coming decades. It is no exaggeration to say that the future growth of the global copper market is almost entirely contingent on a rapid green transition.'
According to a recent report by Goldman Sachs entitled Copper is The New Oil, copper will play a critical role in achieving the Paris climate goals to limit the global warming increase below 2 degrees Celsius.
Copper, seen as the most cost-effective conductive material, sits at the heart of capturing, storing and transporting clean energy sources.
'Discussions of peak oil demand overlook the fact that without a surge in the use of copper and other key metals, the substitution of renewables for oil will not happen,' Goldman Sachs said.
Therefore, the green energy transition will support a record high surge in global copper demand but the speed of the transition will determine the size of the growth.
- Green copper to create 16% of global demand by 2030
Green copper demand amounted to 1 million tonnes in 2020, corresponding to 3% of total global copper demand.
Goldman Sachs forecasts that rapid acceleration in green demand growth from this level could rise to 2.6 million tonnes by 2025, marking 9% of global demand, and to 5.4 million tonnes in 2030, or 16% of total demand.
Demand for around 1.6 million tonnes of copper by 2030 could come from solar power with 1.3 million tonnes from wind power technologies.
Electric vehicles, with more than five times the copper compared to internal combustion engine vehicles, are estimated to account for around 40% of green copper demand by 2030, based on their increasing numbers.
According to International Energy Agency's (IEA) Global Electric Vehicle Outlook 2021 report last week, the number of electric vehicles on the road exceeded 10 million by the end of 2020, with record sales of 3 million in one year.
The IEA expects the number of global electric vehicles will reach 145 million by 2030 based on current policies. The global fleet could reach 230 million if governments accelerate efforts to reach international climate and energy goals, it added.
'The shift to electric vehicles and renewables is coming, but there are risks and the pace and manner in which these markets evolve over time is by no means certain. Changes in vehicle ownership trends can have a drastic effect on vehicle demand in the long term,' Durant said. 'Moreover, should autonomous ride-sharing become widely legislated in developed economies, this would have a drastic effect on global automotive demand.'
- Macroeconomy is supportive of higher copper prices
As demand is forecast to grow, copper prices are also on a path to see historic high levels this decade.
'The macroeconomic backdrop remains supportive, save for concerns over resurgences of COVID-19 in some countries while the copper market remains fixated on selected industry specifics such as exchange stocks and reports of disruptions to supply. Therefore, we see the price likely to move higher near term,' Durant said.
“Copper has been priced near $10,000 per metric ton for the first time since 2011, approaching an all-time high set that year as recovering economies increase demand and mines try to keep up with the supply,” Durant explained.
According to Goldman Sachs, current copper prices are too low to prevent a near-term risk of inventory depletion.
'If copper remains at $9,000/t [per ton] through the next two years, then we estimate the resultant deficits would generate a depletion of market inventories by early 2023,' it said.
Copper is forecasted to reach $11,875 per ton in 2022 and on a necessary path to $15,000 in 2025.
'Despite a tumultuous 2020, the fundamentals of copper look positive, namely growing demand driven by the greening of the economy will lead to a significant supply gap opening up from the mid-2020s, providing strong price support,' Durant noted.
- Need for new mine projects amid environmental concerns
According to Durant, there is a need for new mine projects to be built in the copper industry.
'However, bringing on new mine capacity will be difficult not only due to high capital costs but also the much greater degree and range of stakeholder engagement required than in the past. Risks remain for the copper industry, both from Covid-19 and rising environmental, social and governance pressures,' he said.
Strategic thinking and bold decision making could help turn any apparent threats into opportunities not only to lower costs but also to operate more sustainably and inclusively and ultimately provide for the longevity of the copper industry, he added.
Durant also noted two uncertainties in the copper market.
'One is the extent to which China is able to meet its copper needs from copper scrap. The other is the rate of substitution to other materials, such as aluminum, and thrifting. The substitution threat will become more pronounced if copper to aluminum price ratios remain elevated for a prolonged period,' he concluded.
By Nuran Erkul Kaya