Quiet copper crisis alarms large investors around the world

“Copper is at the heart of the electricity market and everything needs copper,” emphasizes Benjamin Louve, director of raw materials at French management company Offi Invest AM. Because without this material, electricity production is impossible. The same thing is happening in the technology field, where data centers are all the rage. For example, wind turbines require up to five tons of copper, and electric cars require four times more copper than internal combustion engines. What’s more, he elaborated: “To enable the energy transition, we need to double the size of the world’s electricity grids from the current 70 million kilometers to 140 million kilometers,” stressing that “we need to be concerned about the situation” in the supply crisis, as it could put certain projects at risk.

At this time, according to the information, International Energy Agency (IEA)there are 250 operating copper mines in the world, but to comply with decarbonization agreements, an additional 80 mines will need to be opened to cover the energy transition. However, according to experts, it takes on average 17 years to open a new mine. “It’s already too late. Here’s the problem,” Roubaix laments, stressing that the copper market will face a 20% shortage in 2030 and 30% in 2035.

Kerstin Hottner, head of commodities and portfolio manager at Vontobel, says it’s not just a lack of new mines. The expert highlights the fact that copper mining is increasingly complicated due to laws against copper, as well as the fact that production at major mines that already exist around the world, such as Indonesia, Chile and Congo, have closed or reduced production, making the supply of copper problematic. “The United States, China and several European countries are likely to start building strategic copper reserves to secure future supplies,” he says. Save copper so that there is no shortage of copper in the economy in the medium to long term. Michael Widmer, head of metals research at Bank of America, points out: “The deficit is primarily structural.”The problem is exacerbated by the fact that China is one of the countries most focused on electrifying its economy, a major driver of demand, as fewer projects are developed and supply is disrupted.

Projects at risk

Daniel Lerch, lead manager of JSS AM’s Strategic Materials Fund, agrees that the fact that copper supply is not meeting demand is creating problems globally with respect to energy and technology transitions, but at the moment there are “no shortages that would impact the execution of projects”. However, the company acknowledges that beyond strong demand, “mining disruptions and geopolitical issues in key copper producing regions may create a risk of supply shortages in the future.” On top of all this, two world powers, the US and China, are toying with copper tariff policies in a trade war, making the market even more nervous.

Given this situation, investors believe there will be an explosion in copper prices, hurting demand. “There is a risk that copper prices could rise enough to suppress demand, especially in areas where cost is already a critical factor, such as electric vehicles and renewable energy. At some point, rising prices could make projects economically unviable, slowing adoption and investment in these technologies,” Hotner says. However, in any case, since price increases have the effect of balancing the market, we do not think that it is fundamentally negative that price increases reduce demand. “What happens is that demand has to go down. Since you can’t increase supply, you have to destroy demand. The only way to destroy demand is a very strong price increase. “I don’t think people fully understand what’s going on with copper yet,” Levet says.

Experts say the price increase could also spur new investment in copper mines, as their profitability could soar. However, implementation depends not only on price but also on regulations. «Copper prices need to rise to encourage new investment. “This would require an increase of at least 50% compared to current levels, which are currently around $10,000 to $11,000 per tonne, a historically high level.”

Experts say there is a need to bring in new mines, make more use of existing mines and encourage regulation, as well as relying on copper recycling to maintain supplies. The French Institute of Petroleum and New Energies predicts that more than 90% of existing copper resources will be exhausted by 2050, making reuse of existing materials key, investors said. Hottner argues that “recycled copper already accounts for about a third of the world’s supply and will play an important role in balancing the market in the coming years.”