Supply vs. Demand

Copper: the ultimate supply and demand story

At a time the resources sector is dealing with unprecedented challenges – geopolitical tensions, environmental pressures and demand uncertainty, just to name a few – one commodity is weathering the storm.

Copper has been a critical mineral market anomaly. Its price reached an all-time high of USD $11,464 per tonne earlier this year, driven by a surge in demand amid a global supply squeeze.  

Supply cuts from some of the world’s largest copper producers, including First Quantum, which closed its Cobre Panama mine in December 2023, has heavily influenced market dynamics, contributing to a global deficit of the red metal.

This has led to a bolstering of the price, according to the age-old economic law of supply and demand.

It hasn’t all been smooth sailing for copper, with China’s weakening economy and decreasing demand for industrial metals causing the price to retract slightly in the past month.

But the next decade is looking strong, underpinned by a global shift towards clean energy, particularly the electrification of vehicles.

Whilst lithium and nickel have perhaps been more widely associated with EVs, copper plays a crucial role.

Copper’s exceptional conductivity, durability and versatility make it ideal for batteries, inverters, wiring and charging stations – all vital in the creation and implementation of EVs.

The amount of copper needed in EVs is more than double that of combustion engines, and according to the Copper Development Association, an EV can contain nearly two kilometres of copper wiring in its stator windings.

With EV sales on the rise, led by growth in China, an increase in demand for copper is seemingly inevitable.

However, there could be a dent in demand in the future, as car manufacturers assess the possibility of reengineering EVs to improve range and reduce weight.

Tesla recently announced a move to a 48-volt system in future EVs, starting with its popular Cybertruck, which could reduce the amount of copper needed by 70%.

But this crystal ball-gazing doesn’t seem to be impacting the short-term outlook for copper, with the price continuing its upward trajectory.

Copper is not alone as a market stronghold during this time of uncertainty, with gold also piquing the interest of investors.

The price of this shiny precious metal surged this year, reaching a record high of USD $2,450 per tonne in May.

According to boutique corporate advisory firm, Wilsons Advisory, there has been growing interest from investors in emerging copper and gold stories.

“We are currently in a unique pricing cycle where base and precious metal prices are surging, at a time where there is global economic uncertainty,” said Head of Natural Resources Craig Brown.

“Over $4.5 billion in capital has been raised on the ASX for resource companies to May 2024, with close to 60% coming from the gold and copper sector.

“This presents a unique opportunity to investors, who can capitalise on growing demand for copper and gold.”

Read into this what you like, but it’s safe to say all eyes will be on both commodities for the remainder of 2024.