Why You Should Care About Copper
Shawn Martin | January 26, 2018
Source: Ra'ike/CC-BY-SA-3.0 Copper is an industrial commodity and growth of global markets heavily influences the material's supply and demand curve. After a collapse in the market value in 2015, copper had a sluggish recovery until a supply deficit surfaced in 2017. The future state of copper looks bullish, and while commodities are often seen as a highly volatile investment, increased demands coupled with declining ore grades from depleted mines supports an optimistic outlook.
Increasing Demand for Copper
Copper is an extremely versatile metal. It is a malleable and ductile metallic element with excellent thermal as well as electrical conductivity. It is both corrosion resistant and antimicrobial. Demands for refined copper exist across many industries including building and construction, power generation and transmission, transportation as well as a plethora of industrial uses including electronic product manufacturing and industrial machinery.
Urbanization in China accounts for the largest demands for copper today and almost half of the approximate 22.9 million metric tons consumed in 2016. The nation's ambitious One Belt and One Road (OBOR) Initiative is expected to heavily influence copper demands for the foreseeable future as they invest in critical infrastructure, including a network of railways, roads, pipelines and utility grids that would link China to Central Asia, West Asia and parts of South Asia.
Outside of China, the electric vehicles (EVs) market is also expected to influence future demand. The International Copper Association (ICA) released a study titled, “Copper Intensity in the Electrification of Transport and the Integration of Energy Storage,” with research conducted by IDTechEx. The growth of the EV market is expected to unfold with an estimated 27 million vehicles in operation by 2027, almost a tenfold increase from three million in 2017.
A typical combustion engine vehicle requires 23 kg of copper to manufacture while 83 kg of copper is required for a battery electric vehicle (BEV) and 40 kg for a hybrid electric vehicle (HEV). Expected growth in the EV market will increase annual global copper demands by more than 1.5 million metric tons by 2027.
Supply Trends
According to the International Copper Study Group (ICSG), global copper production is estimated to have declined by 2.6% in the first ten months of 2017. Production declines were the result of declining ore grades along with a strike at the Escondida mine in Chile, the world’s largest copper-producing country.
Some of the production declines associated with regional weather patterns and strikes were partially offset by new and expanded capacity in other regions. With a lack of investment in new mines, the long-term forecast suggests a trend for declining ore grades with a considerable drop in refined copper produced from mined copper ore.
Conclusion
A global copper deficit is expected to intensify and the price outlook is amplified as the U.S. dollar remains depreciated in comparison to the currencies of key copper producers, including Peru, Chile and China. Falling inventories at London Metal Exchange and Shanghai Futures Exchange warehouses will continue to be reflected in future spot prices, which for the immediate future have been somewhat stable around, $7,000 per ton. Copper spot price will be heavily correlated with the strength of global economies, and aside from an unexpected downturn, could once again rise above $10,000 per ton.
Resources:
COPPER: An Outlook on Global Supply and Demand
