Copper is sometimes referred to in the financial press as “the new oil”. After all, copper demand is largely driven by two of the same use cases as oil demand: transportation and energy production. Electric vehicles (EVs) may not burn any oil or gas, but they use a lot of copper. They use between 3-5 times as much as an internal combustion engine (ICE) vehicle, depending on which study you read.
Half of this is in the battery; a lithium-ion battery is 18% copper. The rest is distributed among components such as the electric motor, high-voltage electrical system and dashboard electronics. A plug-in hybrid also requires about twice as much copper as a fully-ICE vehicle. And as the proportion of hybrids and EVs on the roads increases, demand for copper among automakers will increase as well.
Renewable energy sources use more copper
The transition to carbon-free energy is also driving copper demand in several ways. First, the production of electricity from renewable sources requires 3-5 times as much copper as production from fossil fuels, on average. Case in point, energy consulting firm Wood MacKenzie forecasts that wind turbines alone will use over 5.5 million tons of copper worldwide by 2028.
In addition, a lot of electricity from renewable sources needs to be stored, because those sources can’t necessarily provide steady output 24 hours per day. A cloudy day can disrupt solar power generation, while a calm, still day can disrupt wind power. Energy planners will need to build copper-heavy batteries into their grids in order to accommodate this intermittency.
Various government renewable energy projects around the world are also directly driving up copper demand. U.S. President Joe Biden, for example, is massively promoting EVs in the country. He recently got Ford, General Motors and several other major domestic automakers to pledge to make EVs at least 50% of new car sales by 2030.
Biden has also been shepherding a $1.2 trillion infrastructure upgrade proposal through Congress; infrastructure projects such as new power lines use large amounts of copper and aluminum.
Copper is the basic raw material of our modern world
There is also a growing demand for copper in the production of electronics. Copper is in almost every electrical device and is the main material used to create interconnectors for semiconductor chips. This is including the chips which are currently in such short supply around the world.
It is the basic raw material of our modern world, in which electronics, digitalization and green technology are playing an ever greater role. There are numerous factors that suggest that copper demand will continue to rise in the coming years – and that supply may not be able to meet it.
This is because copper mine expansion takes time, and new mine construction takes even longer. In recent years, many producers have significantly reduced both their production and their investment in new mines.
Increasing demand with limited supply can drive copper stocks up further
Some governments are incentivizing recycling in an effort to boost the available supply of copper. In the EU, for example, 44% of copper demand comes from recycled copper scrap. Ultimately, however, even the EU’s recycling efforts are a drop in the bucket. Current supply – both mined and recycled – will be unable to keep up with the immense growth in demand unless production is also expanded.
There is much to suggest that demand for copper will rise faster than supply. This will consequently lift the price of copper significantly in the coming years. You can profit from this above all with the shares of copper producers like Southern Copper Corporation (NYSE:SCCO) or Glencore (OTC:GLNCY).