Glencore’s aggressive pursuit of Canada’s Teck Resources has put a spotlight on the race to secure access to copper.
Historically considered a cyclical economic indicator, copper is now also positioned to play an essential role in the global green transition—accelerated by recent legislation, including the U.S. Inflation Reduction Act (IRA), passed last year. Green technologies such as electric vehicles and solar panels require more copper than their fossil-fuel-based counterparts, and supply growth is expected to fall significantly short of demand in the next decade.
In early to mid-2023, China’s sluggish property recovery and worldwide economic challenges may limit copper’s upside, currently trading around $8,500 per metric ton. However, the long-term outlook tells a different story.
U.S. demand, which has long been overshadowed by China’s, is now taking center stage. The Inflation Reduction Act (IRA) provides substantial tax credits and other support for clean-energy projects, including wind farms, batteries, solar, and hydrogen. Goldman Sachs estimates that between 2023 and 2030, it could increase average annual demand by around 180,000 metric tons, or about 1% of current global consumption. The bank notes that “green” copper demand now accounts for 7% of global consumption, up from just 4% in 2020, and is expected to contribute to 47% of total demand growth between 2023 and 2040.
However, current investment plans may fall significantly short of meeting this demand. A February McKinsey report projected global copper demand of 36.6 million metric tons by 2031, primarily driven by the green transition, compared to a supply of only 30.1 million metric tons. Goldman’s April report is even more optimistic, suggesting 2030 demand could reach 40 million metric tons.
Additionally, there are a few bullish trends for supply growth, mainly related to politics. Under the IRA, for example, EVs must use batteries with a certain percentage of their “critical minerals” sourced from the U.S. or a country with a free-trade agreement with the U.S. Copper is not currently on the list of critical minerals, but some researchers and politicians, including senators from key states like Arizona and Georgia, are advocating for its inclusion.
The goal is to wrest control of the clean power minerals supply chain from China. A Brookings Institution report last year indicated China’s share of refining capacity at 73% for cobalt, 68% for nickel, 59% for lithium, and 40% for copper. China has also been directly buying up mineral assets worldwide, particularly lithium, to fuel its vast greentech industry.
A more fragmented supply chain will increase costs for all, especially during the early stages of the green transition. However, higher material prices will stimulate investment. While mineral processing is the primary bottleneck, this likely implies more upstream mining investment, particularly as the IRA will require many battery minerals to be both mined and processed in the U.S. or countries with U.S. free-trade agreements.
A key uncertainty lies in the U.S. Congress, with Republicans’ opening move in the debt-ceiling battle including a demand to undo parts of the IRA.
Assuming the law remains intact, the U.S., China, and Europe will all aggressively work towards greening their economies over the next decade. The world will require much more copper to achieve this goal, especially if global supply chains continue to fragment.
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