🔋Doctor Copper

Of the materials needed for the energy transition, copper has the most modest increase in demand yet we can't even reach those numbers by 2030?

Dec 07, 2022

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Copper is a sometimes overlooked material when it comes to the rise in wind, solar, and battery technologies in our energy mix. Often materials like lithium, cobalt, rare earths, or even PV silicon supply chains get the headlines. However, copper is arguably the foundation to it all, being a relatively common but essential part of electric infrastructure. The metal garnished the nickname doctor copper due to its striking correlation and predictive ability of the global economy. Due to its abundance in supply, in recent memory it has been dominated by demand forces due to its use in almost everything in the modern world, thus lending use as an economic indicator. While still the case, some are raising concern about the supply side of this abundant element given the staggering amount of new materials needed for the proposed energy transition. According to the IEA, which specifies a “SDS” (target) scenario as well as the slated policy scenario. Even for the slated policy scenario, copper demand in 2040 will be 2x from 2020 levels.

Scale factor of 2040 copper demand with respect to 2020 levels. (2020=1). IEA

It is easy to look at that figure and think that since it is a meager 2x over 20 years compared to the other materials on the list, it is the least of our worries of the mentioned materials. Other estimates indicate varying levels of demand increases. Bloomberg estimates a 50% demand increase by 2040 with new copper production able to increase 16% in the same time. This still leads to a 6 million ton/year deficit for most of the 2030s in their eyes. S&P Global estimates an even more dire scenario, with copper demand doubling by 2035 leading to a shortfall of 10million tons/year and the conclusion that the net-zero 2050 targets are not possible even from a copper perspective (full report).

Napkin math time. Taking the average of the high/low estimates, 36mil tons/yr of copper is needed in 2030 compared to 25mil tons/yr used in 2022(projection). Roughly 32% of copper is taken from recycling, and if that trend continues recycling capability would need to increase from 8mil tons/yr to 11.5mil tons/year. Assuming that is possible, new mine production would need to increase from 17mil tons/year to 24.5mil tons/year. That comes out to an additional 7.5mil tons/day of freshly mined copper in 2030. The largest copper mine in the world in Chile produces 1.5mil tons/year with other large mines producing 300,000-600,000 tons/year. Based on projections, this is equivalent to ~13 new very large mines or ~25 new large mines, or ~75 100,000 ton/year mines coming online in the next 7 years. This does not include productivity declines in mines that are aging and are depleting.

Instead of my math skills and limited knowledge, let’s look at the S&P report. They report 43 committed, 14 probable, and 26 possible copper mines to come online or expanded upon by 2030. There is naturally a distribution of mine size. For an idea of some of the projects, take the figure below of new (greenfield) projects.

Their estimates of nearly 25mil tons/year by 2030 lines up with my napkin math (yes, partially derived from their data). This figure eloquently shows the issues that start to arise even if every possible mine in talks opens between now and then. A significant copper deficit starting even in mid 2025.

A lot could change between now and then. An optimistic view about the energy transition would say that since the world is committed to a cleaner future and as prices increase due to sustained higher demand, other miners will become incentivized to come online and fill the gap, especially with governments willing to fund the endeavors. A different view says that high prices are a cure for high prices in the market, and since prices will go higher with the demand imbalance, the projects will be considered not worth while and the energy transition abandoned.

The energy transition as it is currently outlined will certainly have to be altered and I’ve discussed some of the reasons on top of just copper, (lithium, graphite, and other issues like policy and electric vehicles). Often overlooked and impossible to predict is the innovation and alternative technologies that throw estimates similar to these into the garbage. Could mining efficiencies, electricity usage efficiencies, better recycling methods, or other technology make the gap in copper attainable by either increasing supply or reducing demand?

It seems as though copper demand is more elastic than supply based on the estimates for copper production and the inability for new mines to be funded, permitted, and commissioned quickly. This means that political issues could cause a swing. A government that is no longer committed to providing additional funding to the energy transition could hamper demand quite easily. We are living in a crazy time and I have talked briefly in come articles about some of the economic issues we are seeing around the world, and black swans like major global recession/depression or wars could provide substantial changes to the copper and overall energy transition supply/demand dynamic. It is the case that during times of war or severe hardship the energy transition gets thrown out the window. Germany is a perfect example of this as their coal consumption has increased drastically this year and are scrambling to sign long term LNG deals with Qatar and others as they are unable to properly rely on their extensive renewables fleet for energy. It appears to me like most real world scenarios are tilted against the favor of copper production reaching the needs of the energy transition in a manner that satisfies the current projections, but human ingenuity can be a crazy thing. What do you guys think?

-Grayson

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