Why Copper Demand Is Skyrocketing

June 6, 2024

Why Copper Demand Is Skyrocketing

MrBigMoney How To, How To Invest In The Metals Market BHP, Chile, china, Codelco, conductor, Copper, copper demand, copper mining, copper price, copper price prediction, copper prices, copper prices forecast, copper shortage, copper supply, electric cars, electric vehicles, electricity, energy transition, Freeport-McMoRan, Glencore, green energy, Kennecott, miners, mines, mining, offshore wind, open pit mining, refinery, Resolution Copper, Rio Tinto, San Carlos Apache, smelter, Southern Copper, stock market, stock market news, wiring 37 Comments

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Demand for copper is surging. The red metal, considered a barometer for economic health, is a vital component for the construction and defense industries, as well as a key ingredient in electric cars, wind turbines and the power grid. Offshore wind, for example, requires about three times as much copper as does coal-fired power generation in terms of tons per gigawatt of capacity. The outlook for copper is very positive. I’ve never been more enthusiastic about it. But mining companies are having a hard time keeping up. There’s this growing consensus that demand fueled by the energy transition is going to outstrip supply, and that’s why analysts are now saying we’re simply not going to have enough of it. And so copper really is the backbone of decarbonization goals. There’s going to be a real problem with this transition over the next ten years, is that it is very, very hard for these companies to even maintain the level of production that they have at the moment. Globally, existing mines and projects under construction will meet only 80% of copper needs by 2030. That has analysts predicting the red metal is at the start of a new bull market. In recent years, prices have soared. To keep up with demand the industry is faced with a number of obstacles, including the shortage of mining workers navigating regulatory hurdles, as well as pushback from local stakeholders. There are areas where you can mine and areas where you can’t mine. The mine being it’s it’s a sacred site for the Apaches. The other part is that that’s where we get our water from. On top of that, mining is difficult, costly and often dangerous work. Mining is a very capital intensive business. It takes 10 to 15 years to build these mines. Imports made up about 40% of copper usage in 2023, and that could jump to two thirds by 2035. So what impact will the looming global copper shortage have on the transition to renewable energy sources? To look at the challenges facing copper producers, CNBC got a behind the scenes look at Rio Tinto’s Kennecott mining operation outside of Salt Lake City, where about 200,000 metric tons of copper are produced annually. Copper is essential to modern life, delivering electricity to our homes and powering our electronic devices. Because of its strength, efficiency and reliability copper is also the most economical conductor available, making it ideal for wiring systems. It is also a bellwether of the global economy. Directly and indirectly the copper industry supports more than 395,000 US jobs and more than $160 billion in economic output. Global demand in recent years can be attributed largely to the economic growth and urbanization in China, which made up 54% of the world’s consumption in 2021. But copper is also a critical mineral central to the energy transition in things like EVs and solar panels. An EV, for example, uses about 3 to 4 times the amount of copper as a typical combustion engine vehicle. In addition to being used in EV motors, batteries, and power cables, because of its high conductivity, it is the preferred choice for high speed data wires used in vision systems and sensors. It’s also essential for the infrastructure that carries that power, so think distribution, transmission lines, all the wiring, all the updates to the grid. That’s all going to require so much copper. Increasingly, it’s recognized that the move towards AI and data centers is going to increase copper demand. Copper is also 100% recyclable, with the majority of the 550 million metric tons produced since 1900 still in use today. Recycling constitutes about 17% of the world’s refined copper supply. The America’s dominate global copper production, with the region hosting 75% of the world’s largest mines. Chile holds the top spot among producer nations at 22%, followed by Peru, the DRC, China and the US. But demand may already be starting to outweigh supply. The amount of copper needed in the 28 years between 2022 and 2050 will exceed the amount consumed between 1900 and 2021. But while copper is abundant globally, only a fraction can be extracted cost effectively due to today’s prices and technology. High grade economic copper resources are not abundant. These things aren’t all over the place. You have to go find them, and they’re in risky regions or in very geographically challenging regions. You know, high in the mountains in Chile or in the Gobi Desert in Mongolia. So you have to go into difficult regions of the world where there’s no infrastructure, maybe there’s no water. You need a lot of water, maybe there’s no people. You need workers. Roughly 2.1 billion metric tons of copper reserves globally have been identified, and an estimated 3.5 billion metric tons are believed undiscovered. The US has the world’s sixth largest copper reserve, behind Chile and four other nations. Constrained by investor pressure for dividends and with much of the world’s high quality copper resources in geopolitically risky regions, international mining companies capital spending on new projects has remained subdued in recent years. For a while back in the 2010s, they spent a lot and investors didn’t like it. And so now they’ve pulled back on their exploration and production budgets. They’ve been paying dividends, they’ve been buying back stock. And all of that means it’s hard to build new mines. So you want to build a mine in a region of the world where the rule of law will apply? The mine is not going to get stolen. There are examples of mining companies that have spent multiple billions of dollars on copper assets and other mining assets in regions of the world where they end up basically dealing with government efforts to steal the mine. Inflation and the high costs associated with building a new mine have also been a deterrent. It’s so capital intensive, you need to invest billions up front for a payout that might take 10 or 15 years to come in the future, and by that time, who knows what the economic landscape, who knows what the geopolitical landscape will look like. And so it’s hard for investors to give the green light for that. These macro economic factors are causing companies to be hesitant about investing in new copper supply, which those investments take many years to result in new production. But despite those hurdles, there have been a smattering of new projects. Mining giant Rio Tinto, one of the world’s largest mining companies with 2023 copper revenue of $6.6 billion, has ramped up production of its giant Mongolian copper mine. And a startup backed by Jeff Bezos and Bill Gates has found a large scale copper deposit in Zambia. At the same time, mining stocks have continued to climb. The top producing copper companies include Codelco, Glencore, Freeport-McMoRan, BHP and Southern Copper. To mitigate risk some copper miners are looking to the US to expand their operations at about two miles wide and roughly a mile deep, the Bingham Canyon Mine, owned and operated by Rio Tinto, is one of the world’s largest man made excavations. And the mine, located outside of Salt Lake City, Utah, is about to get even bigger. To ramp up production, Rio Tinto is expanding its open pit mining operation and has begun an underground mining project at the site, where typically the ore is a higher grade than a surface mine. In addition to its size, the operation is unique for its smelter and refinery, where the ore is processed into almost pure copper. We’re able to pull the ore out that’s needed. It then goes to a concentrator where we concentrate that ore to around 25%, and then get shipped in a via pipeline down to our smelter. We’re then able to increase it to about 94%, and then we take it to our refinery, where we’re able to make it into 99.9999% pure copper. About 95% of what we ship ends up directly here in the US. A lot of our customers are in the Midwest, and they either get made into copper wire, which can then go into motors or into the auto sector. But about 700 miles away outside of Phoenix, the company is struggling to get another project off the ground. Resolution Copper, co-owned with BHP, has the potential to supply nearly 25% of US copper demand. The last hard rock mine that was permitted in the US was in 2008. So it takes a while and we’ve been working like on the Resolution mine for about 18 years. In addition to regulatory hurdles, the mine is facing resistance from local stakeholders over concerns about dwindling water supplies and the preservation of Native American land. Henry Munoz is a third generation miner. Arizona right now we’re like in our 23rd year of a drought here. Water is a scarce thing. It is really hard to build a new mine in the US. If you think about it, people don’t want pipelines or transmission lines or a big open pit mine in their backyard. And now there’s a lot more ESG scrutiny of these projects, a lot more environmental concerns. And it can take a decade to even secure the permits. While the exact figure is disputed by Resolution Copper, a water study by the San Carlos Apache Tribe says the mine will require billions of gallons of water over its lifetime. Resolution Copper says it has stored enough water to sustain our operations, assuming the maximum production for more than half of the mine’s operating life. Despite those challenges, demand for the base metal is expected to climb, with copper seen as a key player in the energy transition ecosystem. Theoretically, there are enough reserves in the US that we could become independent for a copper need. We could. It’s just how do we do that? How do we get the permits? How do we get the acceptance of the public? How do we work through those challenges? The reality is without copper, without aluminum, without mining, there’s no energy transition. There’s no decarbonization. In fact, when you look around you, everything around you is either grown or mined. So if we need to build the infrastructure for the world to continue to advance, we need mines.

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