It feels like a shortage in copper is only a matter of time. It isn’t.
“Within the next three years, consumption should easily overtake production,” read a dire warning The Wall Street Journal once quoted.
That quote is from 1909, however, a time when growing demand from the electricity and automobile industries had investors worried.
The set up for copper feels similar today with rising demand for electric vehicles unnerving investors worried about the grid. The world won’t run out of copper, though, and calls for persistent shortages miss the point, and risk harming investors.
It isn’t that copper is unimportant. It’s very important. Consultant Wood Mackenzie calls copper the “linchpin of a zero-carbon economy,” and projects a near-10 million metric ton shortfall in copper production over the coming decade. A metric ton is 2,200 pounds.
That works out to a shortfall of about 1 million metric tons a year. Annual demand for copper around the world amounts to about 26 million metric tons.
Mackenzie’s math looks sound. An EV has almost three times as much copper as a conventional car. About 10% of global copper demand goes into cars. Construction is the dominant user of copper.
Most of the forecasts, including Wood Mackenzie’s, imply that copper demand should grow at 3% to 4% a year for the coming decade. Annual demand growth over the past 30 years has averaged about 3%.
That isn’t a big change, and grid-related demand could surprise to the upside. Things, however, tend toe get more efficient over time. U.S. electricity demand, for instance, has been roughly flat since 2007 while the American population is up about 10% over the same span. What’s more, EVs do most of their charging “off-peak” when electricity plants have spare capacity.
Those might be reasons why
(TSLA) CEO Elon Musk doesn’t see a coming copper disaster. “No change in copper production is required for the transition to sustainable energy,” said Musk in late January.
Musk isn’t trying to talk down the price of all commodities. He added in the same comment that lithium refining needs to “increase dramatically.”
didn’t respond to a request for comment about his comments.
is a key component in lithium-ion batteries that power EVs.
Musk also says there is enough lithium on earth. It’s just a question of extracting and refining it. There is also enough copper, physically on earth, to meet rising demand. Copper reserves, which is copper recoverable at reasonable prices, totals about 890,000 metric tons, or about 34 times current production.
Reserve totals change, too. Global copper reserves totaled only about 310,000 metric tons in 1995.
There is always some drama from mine closures as well as labor and political unrest, but those tend to be shorter-term issues. “There are a lot of new copper mines ramping up near term so this talk of deficits is odd,” says one Wall Street analyst who prefers to remain anonymous.
Another thing that changes with production and reserves is price. Back when Stanton was worried about copper it cost about 13 cents a pound. Copper costs about $4 a pound now.
Price is always the most important factor in commodity markets that mitigates shortages, and keeps production coming. Wood Mackenzie realized this and believes copper will rally to $5 a pound in the next five years.
That would add a couple of hundred of dollars to the price of a typical EV.
So if there is enough copper, a good question for investors is whether or not copper miners are good investments. Wall Street says no.
The world’s largest copper miner is Chile’s state-owned producer Codelco. Five significant publicly traded companies are:
First Quantum Minerals
Of those five, only
screens well. The Buy-rating ratio for Glencore’s stock is almost 90%. The average Buy-rating ratio for a stock in the
is about 58%. The other four copper miners have below average Buy-rating ratios.
The Street is cautious on the sector, possibly because of strong recent gains. The five miners are up about about 17% over the past three month, on average.
Also, commodity investors can be more concerned with short-term outlooks than long-term trends, and traditionally a slowing economy isn’t good for commodity prices.
Global copper production in 1909, when The Wall Street Journal published that ominous warning, amounted to about 880,000 metric tons. (The U.S. accounted for about 55% of global production.) Production now is about 26 million metric tons annually. That’s a growth rate of about 3% a year. (Now the U.S. accounts for about 5% of global copper production.)
Write to Al Root at firstname.lastname@example.org