The surge in copper prices has calmed in recent weeks, Withdraw All-time high for May It closed below $9,000/ton. Similar to the oil market, copper market sentiment was dampened by weak US manufacturing and labor market data, weak Chinese data, and a large increase in LME inventories.
Last week, Goldman Sachs Downgraded Copper Price GS now expects copper prices to average $10,100 a tonne in 2025, down sharply from its previous forecast of $15,000, due to weakening demand from China. BHP Group (NYSE:BHP) recently lowered its forecast for Chinese copper demand due to concerns about China's economic recovery.
Fortunately for bulls, copper's long-term outlook remains strong. A few months ago, Swiss multinational commodity trading company Trafigura said: Predicted Booms in electric vehicles, artificial intelligence (AI), power infrastructure and automation are projected to drive an increase in copper demand of at least 10 million tonnes by 2035. A third of that new demand will come from the electric vehicle sector, according to Graham Trane, head of metals analysis at Trafigura.One-third will be spent on power generation, transmission and distribution, while the rest will be spent on automation, manufacturing capital investments and cooling systems in data centers.” he said.
“The GDP growth rate is expected to reach 1.5% in 2021,” said Saad Rahim, chief economist at Trafigura. Projected AI alone could increase copper demand by 1 million tonnes per year by 2030.
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“The next wave of cryptocurrency will be a huge step forward,” declared Jeff Currie, chief strategy officer at The Carlyle Group and former head of global commodities research at Goldman Sachs. Copper is the new oil And it's the best trade he's seen in his career. The analyst notes that copper has long been touted as a big beneficiary of the world's push for electrification, including electric vehicles and massive power grid upgrades. At the same time, Currie notes that it will take years for new copper mining capacity to actually come online. But copper prices have unexpectedly plummeted several times over the past two years. Currie says this has created a mismatch between near-term prices and long-term supply, making copper his highest-conviction trade to date.
On the other hand, recent studyAccording to a report published by the International Energy Forum (IEF), “Copper Demand to Outstrip Supply Over the Next 20-30 Years,” the EV revolution alone will drive demand for copper so high that supply will struggle to keep up. Current projections, according to the IEF, are for copper production to increase 82% by 2050 to 37.1 million tonnes. However, to power the entire global fleet of electric vehicles, supply would need to increase by another 55%, which would equate to building six new mines per year until 2050, for a total of 194 new mines. With an estimated 6.66 billion tonnes of confirmed copper resources worldwide, a copper shortage is not the main issue here, but rather the fact that it takes around 23 years to turn a copper discovery into an operational mine. The long development time suggests the world faces a near-impossible challenge of developing enough mines to meet demand within the available time frame.
Source: Mining.com
However, the report notes that if copper recycling does not increase as expected and remains constant at 2018 levels, 43 new mines would need to come online each year, creating a copper demand gap of 8.1 million tonnes in 2035 and 9.6 million tonnes in 2040.
Notably, to arrive at this dire situation, the study used the same methodology that American geologist M. King Hubbert used to accurately predict 30 years of U.S. oil production. But Hubbert's model fell apart as hydrocarbon resources expanded with techniques like hydraulic fracturing, directional drilling, and enhanced oil recovery (EOR) that allowed shale to produce natural gas and crude oil. This gives the world a small window of opportunity to speed up the process of bringing new copper mines online.
Hybrids are a potential solution
The IEF also suggests abandoning efforts to replace fossil fuel-powered cars with fully electric vehicles, instead recommending a different approach: hybrids.
“There is a surprisingly small difference in the amount of copper needed to build a hybrid electric vehicle and an internal combustion engine vehicle.The researchers point out that a hybrid electric vehicle requires 29 kg of copper, while an ICE (internal combustion engine) vehicle requires 24 kg of copper.So rather than moving to 100% battery electric vehicle manufacturing, which requires 60 kg, it would be prudent to aim to move to 100% hybrid electric vehicle manufacturing by 2035. This transition would require only slightly more copper than the baseline and would not require major grid improvements.“The report authors state:
Fossil fuel investors will be happy to know that hybrids are here to stay. Incredibly popular In this era where pure EVs have become mainstream, Toyota Motor Corporation(NYSE:TM) launched the Prius. Nearly 3 million hybrid EVs were sold in 2022, accounting for roughly 30% of all EVs sold. Hybrids remain popular because they can save a lot on gas, eliminate the charging anxiety that comes with pure EVs, and reduce carbon emissions.
Hybrid vehicles have ICE components and an electric motor, and they store energy in a battery. However, hybrids cannot be plugged in to charge; instead, they are charged by regenerative braking of the internal combustion engine. The extra power provided by the electric motor potentially allows for a smaller engine, adding environmental benefits. According to the Alternative Fuels Data Center, the battery can also power auxiliary loads and reduce engine idling at stops.
Article by Alex Kimani of Oilprice.com
