Is Copper a winning or losing bet right now?

The red-hot copper rally has cooled in recent weeks with prices pulling back from them Biggest ever to close below $9,000/t. As with oil markets, sentiment in copper markets weakened, driven by weak US manufacturing and labor market data, weak data from China and a sizeable rise in LME inventories.

Last week, Goldman Sachs demoted him the price of copper forecast, due to weakening demand from China. GS now sees copper prices averaging $10,100 per metric ton in 2025, down sharply from its previous forecast of $15,000. Moreover, the Australian mining giant BHP Group (NYSE:BHP) recently downgraded its forecast for China’s copper demand amid concerns about the country’s economic recovery.

Fortunately for the bulls, the long-term outlook for copper remains robust. A few months ago, the Swiss multinational commodity trading company Trafigura PREDICTED that electric vehicles, artificial intelligence (AI), energy infrastructure and the automation boom will generate at least 10 million metric tons of additional copper demand by 2035, according to Graeme Train, head of metals analysis at Trafigura, a third of the 10 million tons of new demand will come from the electric vehicle sector”,A third is electricity generation, transmission, and distribution, and the rest is for things like automation, capital production, and cooling systems in data centers.he said.

Saad Rahim, Chief Economist of Trafigura, designed that AI alone has the potential to add one million tonnes per year to copper demand by 2030.

Related: Rystad: Germany set to generate 80% of electricity with renewables by 2030

Jeff Currie, Chief Strategy Officer at The Carlyle Group and former Global Head of Commodity Research at Goldman Sachs, said that copper is the new oil and the best job he has seen in his career. The analyst pointed out that copper has long been touted as a big winner in the world’s drive towards electrification, including electric vehicles and huge grid upgrades. At the same time, Currie notes that it takes years for new copper mining capacity to actually emerge. However, copper prices have unexpectedly fallen several times in the past two years. Currie says this has created a mismatch between short-term prices and long-term supply, making copper the most bullish trade ever.

Meanwhile, a recent studypublished by the International Energy Forum (IEF) says that the EV revolution alone will generate enough demand for copper to outstrip supply over the next two decades. According to the IEF, current forecasts show that copper production will increase by 82%, to reach a massive 37.1 million tonnes by 2050; however, supply will need to increase by another 55% to power a global fleet of electric vehicles — the equivalent of establishing 194 new mines or six each year by 2050. With about 6.66 billion tons of identified global copper resources, copper Scarcity is not the main issue here, rather than the fact that it takes ~23 years to turn a copper discovery into a working mine. The long development time suggests that the world faces an almost impossible task of developing enough mines to meet demand in the time frame available.

Source: Mining.com

However, the report notes that if copper recycling remains constant at 2018 levels, rather than increasing as assumed, 43 new mines will need to come on stream each year, with the copper demand gap reaching 8.1 million of tons in 2035 and 9.6 million tons. in 2040.

It is worth noting that the study used the same methods to arrive at this dire picture as the one used by American geologist M. King Hubbert to accurately predict 30 years of US oil production. However, Hubbert’s model broke when technologies such as hydraulic fracturing, directional drilling, and enhanced oil recovery (EOR) made it possible to produce natural gas and crude oil from shale and expanded hydrocarbon resources. This gives the world a narrow window to speed up the process of bringing new copper mines online.

Hybrids A potential solution

The IEF also offered another way to abandon efforts to replace fossil fuel-powered vehicles with all-electric vehicles and replace them with hybrids instead.

“There is remarkably little difference in the amount of copper required to make hybrid electric vehicles rather than ICE vehicles,” the researchers point out that hybrid electric vehicles require 29 kg of copper, compared to 24 kg for an ICE (internal combustion engine) vehicle. “Therefore, it would be prudent to aim for a transition to 100% hybrid electric vehicle manufacturing by 2035, rather than switching to 100% battery electric vehicle manufacturing, which requires 60 kg. The copper required for this transition is only slightly above baseline and does not require major network upgrades“, said the authors of the report.

Fossil fuel investors will no doubt be pleased to know that hybrids are here to stay incredibly popular in this era where pure electric vehicles have become dominant, 25 years since Toyota Motor Corp. (NYSE:TM) launched the Prius. Nearly 3 million hybrid electric vehicles were sold in 2022, good for nearly 30% of all electric vehicles sold. Hybrids remain popular because they offer considerable gas savings and reduce their carbon footprint without the charging anxiety associated with pure electric vehicles.

In a hybrid car, there is an ICE component and an electric motor, with energy stored in the battery. However, a hybrid cannot be plugged in to charge. Instead, it is charged by the regenerative braking of the internal combustion engine. The extra power provided by the electric motor can allow for a smaller engine, adding some environmental benefits. The battery can also power auxiliary loads and reduce engine idling when turned off, according to the Alternative Fuels Data Center.

By Alex Kimani for Oilprice.com

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