Copper is an essential building block of the 21st century global economy. This efficient conductor of electricity is needed to manufacture everything from electric vehicles to renewable energy systems to computers. To build just one electric car, you need an astonishing 83 kilograms of copper, a 277% increase when compared to traditional combustion engine vehicles. When talking about renewables, solar, hydro, thermal and wind energy systems all use copper as a conductor. All of this means that the copper market is no longer what it used to be, with prices nearly doubling just in the last 3 years, reaching some of the highest prices in history. Nonetheless, with global demand for copper expected to double by 2050, the rush is far from over.
Thanks to the intrinsic value that this metal has in so many sectors of our economies, the price (and demand) for copper is viewed as an economic indicator. In the past, the price of copper has often been capable of predicting turning points in the global economy: the demand for copper is a derived demand, which means it’s dependant on the demand for the goods in which copper is present, and since it has so many applications in so many sectors, it can forecast aggregate demand in general. Simply put, copper demand rises when things like more houses, factories and cars are built.
Although it still remains a good indicator of the economy, as increased demand for copper almost always has positive correlations, perhaps we should not entirely rely on this assumption and should be careful in simply saying that the growth in current copper prices is an indication of economic growth. Why? Well, we should consider that the main push in this recent growth is limited to a number of specific industries that have exponentially grown due to the nature of the products they produce, such as electric cars (even though it is a large number of industries), and not the market as a whole. Simply put, yes, it could mean that our economy is growing, but it could also mean that our demand is just structurally changing towards goods that require more copper due to their nature.
Up until a few years ago, economists globally had forecasted a controlled and stable growth for the price of the metal as well as a relatively adequate supply; yet, the recent conflict in Ukraine could change things up even more than they already have. As western countries hurry in the hunt for new energy supplies, in a bid to boycott Russian gas, it’s easy to see that the shift towards renewable energies will only accelerate. More renewables means more need for copper. The energy transition simply can’t happen without an adequate supply of this metal.
For a large part of the last century the world has operated on an average 40 year supply of copper, but the increased demand for it in today’s industry might drastically shorten that supply. Even though estimates say that we have only mined 12% of the earth’s copper reserves, quickly increasing the supply of copper is not that simple: reserves need to be located, mines need to be opened, the metal must be extracted, and refining plants must be expanded. On average, it can take 2 to 8 years to locate a mine and 4 to 12 years to develop it, meaning we must act quickly if we are to fulfil this future demand.
However, investment in the copper supply chain has been lacking significantly throughout the last decade, and this could represent a notable hurdle in the energy transition. This lack of investment can be explained by a number of reasons, namely, unattractive low prices (up until the recent growth copper prices had remained stable and growth had stagnated); increasingly strict regulations, and declining ore grades (the concentration of desired material that the ore contains). Since demand has changed in a relatively short period of time, adjusting the supply for a material like this won’t be as immediate. Donald Lindsay, the CEO of one of Canada’s leading mining companies, Teck Resources, stated that at this rate ‘there is not enough copper supply out there to get us beyond the next five years’. On top of this, during the pandemic, high freight rates and delays in the logistics industry have also taken their toll in managing global supply.
All in all, the economy of the future will need more copper, it’s inevitable, which means that unless we want to fall short on some key aspects in the development of our economies, especially in renewables, both governments and companies must act immediately in order to rectify the lack of investment in the last decade. Undoubtedly, falling behind on copper in the 21st century is just something the world can’t afford.