While world major economies and demands slow down, the declined copper price discourage the investment of mining, wind farms, solar arrays and electric vehicles.
The Wall Street Journal reported, a prolonged slide in copper prices is challenging the world’s shift to renewable energy sources. Copper futures have slid 20% from highest in the past 10 months, to about $3.58 a pound recently. Main reason is weaker-than-expected economic recovery of China, the world’s largest copper consumer. Other factors include the resolution of supply disruptions in Chile and Peru, two largest producers, a slowing global manufacture sector and a strengthening dollar.
Declined copper price will likely delay the global energy transition. (Photo: Unsplash)
The International Copper Study Group (ICSG) assumes, supply and demand struck a near balance in 2023. However, by 2024, the market will shift into a considerable surplus. According to data from Bernstein Research, the market will remain in surplus until it shifts into an increasingly widening deficit beginning in 2027. By that year, growing demand will encounter underinvestment in the mining sector, which already faces lower ore grades. This will likely delay the global energy transition.
Swiss commodities Glencore Glencore and Freeport-McMoRan from U.S. said in recent earnings calls that they are waiting for higher prices before committing to big new investments. Gary Nagle, CEO of Glencore, said he would prefer prices reach at least $4.50 a pound before opening a new mine in Argentina that he expects to produce copper for three decades.
The result of that timing mismatch is a temporary surplus that is keeping copper prices low, said Goldman Sachs metals strategist Nicholas Snowdon. “It’s a matter of when, not if, the market goes into an extreme state of scarcity and the copper price spike plays out,” he added.
Builders of new energy sources, batteries and power lines are demanding more copper, but they still account for less than 10% of global usage, said Max Layton, global head of commodities research at Citigroup. Nonetheless, Layton estimates that copper prices would be roughly 15% lower if not for the growing green market.
The momentum behind green market is China, which consumes more than half of the world’s copper, and which is making huge investments in renewable energy and EVs. The country’s solar-related copper demand over the first three quarters of this year was more than 150% higher than during the same period in 2022, according to Goldman Sachs.
The project pipeline of French cable supplier Nexans has tripled over the past 5 years, largely came from clean energy projects, said Chief Executive Christopher Guérin. His company uses more than half a million tons of copper a year, and while he worries about future shortages, he limits the buying he does in advance to the amount his pipeline requires, to avoid speculation.