Clean Energy Demand Drives Copper Price to Record Highs
As Americans return to work and the U.S. economy ramps up, a perfect storm is brewing for commodities.
We are at the start of a new commodity supercycle, a long period of time when demand for a commodity outstrips the supply. And this cycle has plenty of catalysts.
The White House has big spending plans for infrastructure, while America and the rest of the world are hot on the trail of greening the energy sector.
That’s all good news for commodities. But especially for copper.
Copper is used in pipes, wiring, motors, batteries and generators. Its conductivity is better than that of any other metal.
Renewable energy and electric vehicles need millions of tons of it. For instance, the average wind farm uses between 4 million and 15 million pounds of the shiny metal.
It’s certainly a great time to be in the copper business. But there’s a big problem.
Copper Is in Short Supply
Within 10 years, the world could see a massive shortage of copper. The industry needs to shell out more than $100 billion to increase both mining and manufacturing capacity.
If it doesn’t, the world could be looking at an annual supply deficit of 4.7 million metric tons by 2030. And copper is already in short supply today.
This problem starts at the mines. Many South American copper mines were closed for part of 2020 due to the pandemic. Couple that with the difficulty of shipping ore around the world last year and it’s a recipe for scarce supply and higher prices.
And “higher” is an understatement…
Today, the price of copper is at record highs of more than $10,000 per metric ton, or $4.75 per pound. And if the shortage of copper continues, we could see prices of $15,000 per metric ton by 2025.
The increased demand for copper is coming from China and many other rich countries switching to renewable energy resources and green alternatives.
For example, an EV uses four to five times as much copper as an internal combustion engine vehicle. And an EV charging station has plenty of copper inside it too.
Today, about 1 million metric tons of copper go to green uses. That’s about 3% of the overall supply.
And that’s expected to jump to at least 5.4 million metric tons by 2030. That would be 16.2% of the annual supply.
However, the number could easily be greater than that, which would drive prices much higher.
And producers can’t just open more mines. It’s not that easy.
It takes several years to increase output at an existing mine. These days, developing a new mine can take at least 10 years.
Many mine owners are gun-shy when it comes to opening new mines. Some got burned when commodity prices went bust 10 years ago.
Nonetheless, the rise in copper prices has been good for the shares of big copper mining companies…
If copper prices stay high, mining companies will be more inclined to open new projects and expand existing mines.
More Upside Ahead
Two big mines are expected to open this year. Freeport-McMoRan (NYSE: FCX) has an underground mine opening before 2022 in Papua, Indonesia.
And Ivanhoe Mines (OTC: IVPAF) is set to open its Kamoa-Kakula mine in Congo in July.
The demand for copper looks like it’s going to remain firm for decades. And with an uncertain supply future, prices should continue to remain strong.
Copper miners are great pick-and-shovel plays for the renewable energy sector. And with clean energy and EVs both driving massive demand for the metal, investors couldn’t get in at a better time.