Copper: The Metal Powering the Green Energy Transition

Late last week, Goldman Sachs has significantly reduced its 2025 copper price forecast by one-third due to a decrease in Chinese demand, raising concerns about the profitability of major mining companies. The bank stated that the anticipated surge in the copper market is unlikely to happen as the Chinese real estate crisis weakens demand for commodities. They now project an average copper price of $10,100 per tonne for the next year, significantly lower than their earlier prediction of an all-time high of $15,000. However, due to the criticity of copper within the energy transition, let’s look at the global picture before any short term conclusion.

Copper, often referred to as "Dr. Copper" for its ability to predict economic health, is an essential metal in today's world. Its conductivity, malleability, and corrosion resistance make it indispensable for various industries, particularly in the energy and technology sectors. As the world transitions toward a greener future, the demand for copper is set to skyrocket due to its crucial role in renewable energy technologies and electric vehicles (EVs).

Copper's significance in various industries, especially the energy sector, cannot be overstated. It is a key component in electrical wiring, power generation and transmission, telecommunications, construction, and transportation. The metal's high electrical conductivity allows it to efficiently transmit electricity, making it ideal for power grids, electrical motors, and electronic devices.

In the renewable energy sector, copper is indispensable. Solar panels, wind turbines, and EVs rely heavily on copper for their operation. A single onshore wind turbine requires approximately 4.7 tons of copper, while an offshore wind turbine needs about the double. Similarly, solar photovoltaic systems utilize approximative 5.5 tons per MW, mostly for wiring and inverters. EVs as well, with their electric motors and batteries, consume approximately 80kg of copper, four times more than conventional internal combustion engine vehicles.

According to "Bridging the copper supply gap" (2023) from Mc Kinsey, there will be most probably an increasing unbalance between offer and demand in the global copper supply chain. This is confirmed by the IEA. Both project a significant increase in copper demand, reaching 37 million tonnes by 2040. However, current mineral supply and investment plans fall short of meeting this demand, highlighting the need for substantial investment in new mining projects and recycling to avoid potential supply shortages and price volatility.

In fact, copper is mined globally, with several countries dominating the production landscape. Chile, Peru, China, the Democratic Republic of the Congo, and the United States are among the top copper-producing nations. Chile, in particular, holds the largest copper reserves, just before Australia, and is the world's leading producer, accounting for approximately 28% of global copper mine production according to the U.S. Geological Survey.

However, meeting this surging demand presents significant challenges. Opening new copper mines is a time-consuming and capital-intensive process. It can take anywhere from 10 to 20 years to bring a new mine into production, from initial exploration and feasibility studies to obtaining permits and constructing the necessary infrastructure. This long lead time poses a potential bottleneck in meeting the rapidly growing demand for copper. Find below examples of current mining investments:

• Quellaveco Mine in Peru: Anglo American's Quellaveco mine, which began production in 2022, is expected to produce 300,000 tonnes of copper per year.
• Kamoa-Kakula Mine in the Democratic Republic of Congo: A joint venture between Ivanhoe Mines and Zijin Mining, Kamoa-Kakula is one of the world's largest copper deposits. It is expected to ramp up production to over 800,000 tonnes of copper per year by 2024.
• Resolution Copper Project in the United States: A proposed underground mine in Arizona, Resolution Copper, has the potential to become the largest copper mine in North America, producing up to 1 billion pounds of copper per year. However, the project faces environmental and legal challenges.
• Grasberg Mine in Indonesia: Operated by Freeport-McMoRan, Grasberg is one of the world's largest copper and gold mines. The company is investing billions of dollars to transition the mine from open-pit to underground operations, extending its lifespan and production capacity.
• Olympic Dam Mine in Australia: BHP's Olympic Dam is a significant copper, gold, and uranium mine. The company is exploring expansion options to increase copper production, recognizing the growing demand for the metal.

While these and other investments are underway, it remains uncertain whether they will be sufficient to cover the demand. The long lead times associated with opening new mines and the declining ore grades pose challenges to rapidly increasing production. There is a risk of a supply deficit if investments do not keep pace with the growing demand, which could lead to price volatility and hinder the progress of the energy transition.

While copper possesses unique properties that make it ideal for many applications, researchers and industries are exploring potential alternatives to mitigate supply risks and address environmental concerns. Aluminum could potentially substitute copper in certain applications within the energy transition, but it is not a perfect replacement.

While aluminum is abundant and cheaper than copper, it has only 61% of the electrical conductivity, necessitating thicker wires for the same current flow. About 1.6 tons of aluminum are needed to replace one ton of copper in terms of conductivity. Additionally, aluminum production is significantly more energy-intensive than copper production, requiring approximately 13,000-17,000 kWh per ton compared to 5,000-6,000 kWh per ton for copper. This raises environmental concerns, particularly regarding greenhouse gas emissions. A diversified approach using various materials, coupled with sustainable production methods and increased recycling, is the most likely path to meet the growing demands….but this will not change current increasing tension on copper supply chain.

The current situation in the copper market, characterized by increasing demand, production challenges, and potential supply deficits, has several implications for the global economy and energy transition:

• Copper Price Volatility: The imbalance between supply and demand could lead to significant price fluctuations in the copper market. Price volatility can create uncertainty for industries reliant on copper, impacting their production costs and profitability.
• Impact on Renewable Energy and EVs: The availability and price of copper directly affect the cost of renewable energy technologies and EVs. High copper prices could hinder the widespread adoption of these technologies, potentially slowing down the energy transition.
• Economic and geopolitical implications: Copper's strategic importance and its uneven distribution globally could lead to geopolitical tensions and trade disputes. For instance, if China is currently the world's fourth-largest producer of copper (8% of global production), it also has a massive demand for copper, consuming approximately 54% of the world's refined copper.
• Environmental concerns: The increased mining activity required to meet copper demand raises environmental concerns. For instance, a large copper mine processing 50,000 tonnes of ore daily could consume about 30,000 m3 of water, enough to fill a stadium in a matter of weeks. Scarce water resources in arid mining regions can be further strained, impacting local ecosystems and communities. In addition, when sulfide-bearing rocks are exposed to air and water, they can generate acidic runoff containing heavy metals like arsenic, lead, and cadmium. The Copper Alliance also estimates that for every ton of copper produced, approximately 200 tons of waste rock and tailings are generated.?

Copper is an indispensable metal that plays a vital role in powering the green energy transition. As the demand for copper continues to grow, it is essential to address the challenges associated with its production and ensure a sustainable and secure supply. In addition, it is mandatory to evaluate premium customers will be ready to pay for environmental respectful solutions and this is not specific to copper. Many other minerals, such as lithium, cobalt, and rare earth elements, are also critical for the energy transition and face similar supply and demand dynamics. It is crucial to adopt a holistic approach that addresses the entire mineral value chain, from exploration and mining to processing and recycling.

Today, copper is priced at $4.07 per pound, compared to around $2.60-$2.80 five years ago, with projections for 2025 ranging between $4.26 and $4.90 per pound.