As one of the most important metals on the market, copper is a closely watched commodity. Coronavirus impacted supply and demand dynamics heavily over the past year for the red metal, creating upward price momentum benefitting producers, as well as volatility for traders to profit from. Copper’s supply is not the only factor driving the price.
The electrification of global supply chains and products means that copper is more in demand than ever. Metals used for electric products quickly replacing those of the fossil-fueled variety are growing in use and demand faster than anything else. Lithium, cobalt, and particularly copper stand to benefit the most from the ramping up of battery production and the increased investment in R&D for the sector. The trend will be a powerful driving force for the price per ton of this valuable metal throughout the entirety of the next decade and beyond.
If governments follow through with proposed plans for greater electrification of large economies in the developed world, copper prices would inevitably climb to a level that prompts miners to invest in new production. Mark Hansen, chief executive officer of the trading house Concord Resources Ltd. said in an interview with Bloomberg that, “People need to be aware of the potential for a changing paradigm in terms of pricing. In copper, the market is not yet pricing in the addition of potentially millions of new tons of copper demand over the coming decade. It simply doesn’t happen at $10,000. I would predict that if all those circumstances come true, we really need to see $12,000 copper to bring the market into balance and properly incentivize new production.”
The driving demand for copper will be the electrification of the car industry, energy storage, 5G networks, and much more. The narrative for copper is quite bullish under the conditions laid out in bold government and private industry plans, and producers in western countries in particular stand to benefit immensely from these trends. Smelters in China face shrinking profit margins for processing raw ore into refined metal, making production less attractive as copper treatment charges (an indicator of refining margins) continue to rise. Demand is expected to rise outside of China, allowing western producers to pick up the slack and reap the rewards.
However, if governments fail to implement plans for green-stimulus spending, it could throw a wrench into the works for copper producers and the market. Still, worries are limited as supply is at its tightest in years for some areas of the physical copper market. The metal is just below the record of $10,190 (per ton) set in 2011 and continues to climb as bets on an economic recovery and tighter supplies pull investors into the mix.
Importers continue to demand more copper by the month, in particular, China which is still the world’s largest importer. Government spending pivoting around infrastructure has bolstered demand along with tech necessities and clean energy production and storage products. Vehicle electrification commitments continue, with buy-in from consumers, manufacturers, and even governments. The first round of eco-rhetoric barely made a dent, but the movement is underway at long last. On Feb. 11, Reuters reported that the European Automobile Manufacturers’ Association has said the EU should target one million charging points for electric vehicles by 2024, and three million by 2029 to support the electrification of the car industry in Europe.
Tesla is by far the biggest seller of electric vehicles (EVs) in the world’s largest economy. When Elon Musk speaks up about mining for the metals needed for his cars, the industry listens. His public call to produce more nickel, cobalt, and copper efficiently and in an environmentally sensitive way was received with open arms by one Toronto-based miner, Canada Nickel Co. After Musk put out the open call for a “giant” contract to anyone who could get the job done, the company took him up on the offer, even betting it can be done carbon-free.
The project will likely be set up in Northern Ontario where it can take advantage of cleaner hydro-electric power to mine the metals so important to Musk and the EV industry in general. Producers across the board in North America will continue to ramp up production and as exploration continues to meet the high demands and expectations of the car industry, copper firms like Solaris Resources, Freeport-McMoRan, Codelco, and Glencore stand to reap the rewards.
When SpaceX sent a Tesla sitting on top of a rocket, everyone sat up and paid attention. Copper’s current moment has arrived and will have investors, traders, miners, and everyone using the metal on high alert as it shoots for outer space as well. For now, copper’s price seems to be unbounded by any technical price limitations due to the heavy fundamental favour of supply and demand dynamics in play. For now, copper’s rocket ride should continue with plenty of fuel still sitting in the tank.
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|Lincoln Minerals Limited