![]() The pace of growth in China’s manufacturing sector has often correlated strongly both to the current price of copper as well as copper prices three to five quarters in advance. Some of raw copper is used domestically, while much of it is re-exported in the components of intermediate or finished goods. China’s InfluenceĮach year China buys about 40%-50% of the newly mined copper. Even outside of EV sales, China’s economy has been the single most important source of copper demand for the past two decades. The cost of EVs has been falling rapidly, and EVs may become less expensive than vehicles power by combustion engines by the second half of the 2020s.Īmong the world’s major economies, the fastest growth in EV demand has come from China, where EV sales grew by nearly 190% last year. If EVs sales continue to grow at this fast pace, increasing their market share relative to combustion engine powered cars, it implies potentially strong demand growth for copper and other metals. Moreover, those EVs accounted for less than 4% of the global vehicle sales. Sales of electric vehicles (EVs) surged 160% worldwide in 2021 to 2.6 million vehicles. The transition is already becoming apparent in ground transportation. If such trends continue over the next few decades, it will be possible to imagine a future of abundant, carbon-free energy, but one that requires a great deal more copper wiring. Since 1990, the costs of solar energy and battery storage have fallen by close to 98%. During the past decade, the cost of solar energy fell by nearly 70% while the cost of batteries fell by a similar amount. The energy transition may generate strong demand for copper and other metals such as lithium and cobalt. This may be especially true in Europe and Asia, home to 75% of the world’s population, where natural gas prices have risen to 7-8x North American levels. However, the sharp rise in oil and natural gas prices in 2021 may be raising demand for copper by fueling interest in alternative technologies such as wind, solar, batteries and electric vehicles, all of which imply the use of copper either directly or indirectly. In the past, one might have assumed that this relationship was mostly on the input side: higher/lower crude oil and natural gas prices made mining and refining copper more/less expensive. As such, copper prices tend to show a great deal of co-movement with the price of West Texas Intermediate crude oil, as well as other crude oil benchmarks. Mining and refining metals is an energy-intensive business. While total discovered reserves of copper have continued to climb, the cost of extracting copper has been on the rise and a large part of that cost is energy. Secondly, the copper content of copper ore has declined steadily over time. ![]() First, copper prices fell 58% between the beginning of 2010 and the beginning of 2016, falling close to the metal’s cost of production and thereby discouraging new investments in mines and ore-processing facilities. The exceptionally slow growth in copper supplies resulted from a combination of factors. Since 2013 copper mining output has grown slowly, at just 1.7% per year, less than half aluminum’s 4.6% annual pace of supply growth. Over the same period, aluminum production grew by 256% and iron ore production rose by 257%. Over the past three decades mining output for copper grew far more slowly than for most other metals, rising just 123%. Several factors have contributed to copper’s rally. Copper prices followed China’s pace of growth, which rebounded in the second half of 2020 and the first half of 2021.Ĭopper prices have risen 125% from their March 2020 lows and have been among the commodities that have reached record high prices since the pandemic began.Slower copper production in recent years has led to a shortage with demand rising.
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