For a long time, the price of copper barely fluctuated and played no important role for investors, something that appears to be changing. The red metal has been insistently touching the barrier of $10,000 per ton since April. Until then, there had been a correlation between global economic growth and demand for copper. Now, however, it is increasing significantly despite weak global growth data.
The price of this important raw material on the London Metal Exchange rose 1.7% on May 1, reaching $10,033.50 per ton, its highest price since April 2022. “Index funds and exchange-traded funds on the stock market are pushing the money of private clients into the metals market,” explains Sandeep Daga, from the analysis company Metal Intelligence Center, to the Reuters news agency.
What is copper used for?
If you want to decouple energy production from the consumption of fossil fuels, such as coal or oil, the only way to do this is to electrify the economy. “Copper is, due to its physical properties, especially its electrical conductivity, the most important raw material for the energy transition,” says Joachim Berlebach of Earth Resource Investments in Zurich in an interview with DW. “If we really want to get off fossil fuels, we will need about the same amount of copper in the next three decades as we have in all of human history.”
Michael Widmer, commodities strategist at Bank of America (BofA), also pointed out to the German economic newspaper Handelsblatt that the decarbonization of the economy is the main reason for the price increase: “Copper is used in almost all industries and, therefore, Therefore, it serves as an indicator of the economic situation.”
Insufficient prospecting
But not only is demand increasing, supply is stagnating or even decreasing, which also drives up prices. Commodity expert Berlebach is not surprised: “Due to the lack of investment in new mines over the last ten years, there are not enough copper mines.”
The BofA analyst also complains about the lack of investment. With data collected by the International Energy Agency in hand, Widmer said, “we can estimate what the annual demand for copper will be until 2050 and with that we can calculate how much we can invest in new mines.” “At least $127 billion a year,” he estimates. However, last year, “it was only 104 billion and since 2012 investments have only fallen.”
Long term investments
But that is not all. “Even if the price of copper continues to rise, production cannot be increased quickly, since it takes up to 15 years from the first drilling to the start of production,” explains Berlebach. “And with minerals of increasingly lower purity, new mines must also be designed to be larger,” she adds.
Furthermore, adds Michael Widmer, new mines often encounter resistance because “copper extraction pollutes the environment.” In the German economic newspaper Handelsblatt he gives a close example: last year, the mining company First Quantum had to close the largest copper mine in Panama due largely to citizen protests.
What is the situation like in Germany?
When talking about minerals or metals, it is often said that they are also found in Germany and that you just have to dig them up. Joachim Berlebach doesn’t see it as easy. Copper mining in Germany is uneconomical, comparatively unproductive and “only theoretically” possible.
“In my opinion, large-scale mining in Germany is not possible due to the lack of large deposits and lengthy bureaucratic processes. We depend on deposits in South America or the Congo.” His answer to our question about whether Germany could break its dependence on copper imports was short and clear: “No!”
And there are no alternatives, he explains: “You can use aluminum for power lines, but when you need a coil, such as in a wind turbine or in an electric car, you cannot do without copper,” explains Berlebach. “Aluminum has only about 65% of the conductivity of copper, the cables would be too thick.”
Price will remain high for now
Bank of America analyst Michael Widmer believes that the high price level will be permanent for copper. “Of course,” he admits, according to Handelsblatt, “there may be short-term corrections, but in the long term I see prices rising.” The metal faces what will likely be a long-lasting “supercycle,” he explains. Joachim Berlebach does not expect prices to drop either.
The news from Oslo sounds like a siren song in this context: the Norwegian government is preparing to start deep-sea mining off the country’s coast. Already at the beginning of 2023, the responsible authority reported that there were “significant quantities of mineral resources” in Norwegian waters. Not only zinc and cobalt, but also copper. But it seems impossible that this can satisfy the current hunger for this new red gold.
(lgc/ers)
