The renewable energy push continues. Despite the setbacks the invasion of Ukraine has presented, the world’s major powers are not reassessing their ultimate goal of a completely renewable future at some point. While this might sound fanciful to some, one thing that is rarely discussed is what mineral resources are required to advance this push.
Cobalt, antimony, nickel, silver, lithium, and tungsten are just a handful of minerals used in renewable energy projects. The wind powers the windmill, but the windmill and its components are made up of mined minerals. While the previously mentioned minerals are critical, there is one that trumps them all – copper. Copper is flexible, conducts electricity, and is also recyclable. It is one of the principal materials used in renewable energy systems to produce power from wind, thermal, hydro, and solar energy.
The Net Zero Coalition is a group of 70-plus countries pledging to arrive at net-zero emissions by 2050. Most of the world’s developed countries are part of this coalition, and while this is somewhat of a moving target, a significant uptick in copper production will be needed to get there. Clean energy transition is highly dependent on copper – much more so than cobalt, antimony, nickel, silver, lithium, and tungsten. According to the S&P Global 2022 special report, “The Future of Copper,” at our current pace global copper demand will double by 2035. In metric tons, that’s going from 25 million metric tons (MMt) to 50 MMt in 13 years. Most industry experts find this unworkable.
Copper is theorized to exist in abundance, but there have already been cries of “Peak Copper.” In some instances, copper can be substituted by similar conducting metals but those instances are few and far between. For example, aluminum is often substituted for copper when copper’s price surpasses aluminum by 3.5 to 4 times. Yet, for things like undersea cabling and wiring or use in electric vehicles, few substitutes are as efficient as copper.
Some have posited opening copper mines at a faster rate. To meet the projected demand by 2035, 3 new Tier 1 mines would need to be opened yearly (producing 300,000 metric tons per year) for the next 29 years. If this sounds daunting, it is. Industry experts don’t think it is possible. The International Energy Agency (IEA) revealed in a 2021 study that it takes approximately 16 years to fully develop a mine (from resource discovery to the initial production). This is clearly outside the desired calendar range.
The good news is copper producers are in hot demand. The bad news is the price of an electric vehicle (EV) will likely continue to climb due to production limitations.
Copper traditionally seen as a leading indicator of economic health has unsurprisingly had a rough year. But analysts expect a resurgence in 2023, even as the global outlook remains highly uncertain.
Some of Wall Street’s biggest banks in recent weeks have suggested a combination of short-term supply tightness and long-term energy transition-related demand will push the red metal north from here.
The downward pressure in 2022 stemmed in part from persistent market expectations for a surplus inflection in the metal market, driven by anticipation of sluggish demand amid slowing global growth and an acceleration of mining activity, Goldman Sachs strategists said in a note last week.
However, this has not come to fruition, and Goldman highlighted that the cathode market has remained in a “clear deficit (GS estimate 210kt versus 131kt previously), with global visible stocks falling to their lowest level in 14 years,” metals strategist Nick Snowdown said.
“Equally important, the surplus we previously expected for 2023 (169kt surplus) has also now disappeared in our latest balance iteration (GSe 178kt deficit),” he added.
The metal — used in many sectors — has also endured a tough 2022 due to tighter U.S. monetary policy, the energy crisis arising from Russia’s war in Ukraine and China’s combination of strict Covid-19 lockdowns and a weak property market. LME copper prices peaked at over $10,600/t in March this year.
Should China’s relaxation of its zero-Covid restrictions advance further toward a reopening of the economy, restocking is likely to play out, Goldman believes.
“If China were to return its copper stock to consumption ratio to pre-2020 levels, that would imply as much as a 500kt boost to physical demand,” Snowdown said.
Three-month copper futureson the London Metal Exchange traded at $8,543 on Monday morning in Europe, after posting their strongest month since April 2021 in November on hopes for a demand boost if China eased its zero-Covid policies.
Goldman last week hiked its 12-month forecast to $11,000/t from $9,000/t and upgraded its average price forecast to $9,750/t for 2023 and $12,000/t in 2024.
Bank of America commodity strategists believe copper could rally to $12,000/t in the second quarter of 2023, given the right set of circumstances. Such a scenario would require a pivot by the U.S. Federal Reserve toward less aggressive monetary policy tightening, limiting upside in the U.S. dollar, and for demand to remain supported as the planned energy transition accelerates.
“Notwithstanding the macro headwinds, physical markets have remained tight, highlighting the lack of spare copper units available at present,” Commodity Strategist Michael Widmer said in Bank of America’s 2023 metals outlook report.
Widmer also noted that global copper demand has proven resilient, rising on an annual basis year-to-date as purchases outside China run at record levels.
While macroeconomic headwinds will likely persist into 2023, Widmer said offtake should remain positive when modeled on global GDP growth.
“Taking this a step further … China’s grid spending has offset weakness in the wider economy: indeed, building out the electricity infrastructure has completely offset weakness in the housing market,” Widmer said, adding that the key question going forward was whether this is a one-off or the beginnings of a structural trend.
He also noted that the correlation between global copper demand and industrial production growth has broken down over the past year and a half.
“In our view, this confirms to some extent that green spending has already supported global copper demand and physical markets,” Widmer said.
Bank of America’s collated data on demand growth rates from sectors linked to net-zero policies indicated an expansion in copper consumption of 4.5% year-on-year out to 2030. By contrast, potential demand growth has been 2.1% over the past two decades, Widmer noted.
Consensus more cautious
Although taking a more cautious view to reflect softer market sentiment as a result of the expected global economic downturn, strategists at Fitch Ratings last week suggested any hit to copper will be offset by “supportive short- and medium-term supply-demand drivers.”
“We expect a moderate increase in global primary copper consumption of about 2% in 2023, similar to 2022. Mine supply will grow by around 4% in 2023, although disruptions may affect that,” they said in a research note.
“A tightly balanced market and minimal global copper stocks (less than two weeks’ consumption) will sustain prices in 2023. Copper’s longer-term prospects are supported by demand from the energy transition.”
Fitch maintained a spot copper price assumption of $8,000/t for 2023, sliding to $7,500/t in 2024 and 2025.
However, other institutions retain a more bearish view, at least in the short term. BNP Paribas in its 2023 outlook forecast a three-month copper price of $6,800/t in the first quarter of next year, falling to $6,465/t in the second, but recovering to $8,250/t by the end of 2024.
“We expect a fall in European manufacturing activity to add to the impact of slowing Chinese and U.S. activity,” the French lender said.
“Rising mine supply and accelerating output of Chinese refined copper are expected to push the market into a sizeable surplus in 2023, easing LME spread tightness and weighing on prices.”
Over the past five years, American exports of metal boxes and light gauge containers have doubled in value terms, from $475M to $927M. Canada imports 97% of metal containers supplying abroad from America. In physical terms, Canada ramped up its imports from the U.S. by +62.9% y-o-y in 2020.
American Exports of Metal Boxes and Light Gauge Containers
In 2020, approx. 4.7B units of metal boxes and light gauge containers were exported from the U.S.; jumping by +31% against the previous year’s figure. In the past five years, exports grew from 735M units to 4.7B units.
In value terms, exports of metal boxes and light gauge containers rose markedly to $927M (IndexBox estimates) in 2020. Overall, total exports indicated a buoyant expansion from 2015 to 2020: its value increased at an average annual rate of +45.9% over the last five-year period.
Canada (4.6B units) was the main destination for exports of metal boxes and light gauge containers from the U.S., with a 97% share of total exports. It was followed by Mexico (105M units), with a 2.2% share of total exports. In 2020, the volume of imports to Canada rose by +62.9% y-o-y.
In value terms, Canada ($605M) remains the key foreign market for metal box and light gauge container exports from the U.S., comprising 65% of total exports. The second position in the ranking was occupied by Mexico ($191M), with a 21% share of total exports. From 2015 to 2020, the average annual rate of growth in terms of value to Canada amounted to +25.5%.
