Clean energy demand to drive copper price higher in future, despite recent falls

Copper prices tumbled to a 19-month low last week as recession fears plagued markets, but demand for the critical metal in the clean energy transition as large deposits become more scarce could lift prices in the long term.

Copper was valued at $US7,521 per tonne on the London Metals Exchange early on Thursday (AEST) and has dropped by more than 20 per cent over the past month from a recent high of over $US9,700 in early June.

Copper is one key component of electric vehicles and transmission lines for renewable energy, such as offshore windfarms.Credit: Oliver Bunic/Bloomberg

The metal is considered a bellwether for the global economy, given it’s the world’s third most used metal which is used across multiple key economic sectors. It is particularly important for electricity transmission needed to decarbonise and connect renewables to the grid, alongside electric vehicle development and charging station infrastructure.

ANZ commodity strategist Daniel Hynes said there was “a distinct possibility” copper may not be as reflective of global economic health in future, despite prices falling recently as concerns about economic growth stalling grew as central banks tightened interest rates this month.

“[Copper] has never had the supply side issues that we’ve already seen and are expecting to get even worse over the longer-term. So price sensitivity could deteriorate,” Hynes said.

Hynes said large “world-class” copper deposits were becoming harder to find, forcing miners to “scour far and wide” to for new supply.

He added that economic concerns would cause copper market volatility in the near future, but the medium to long-term outlook was “very, very positive”.

UBS co-head of mining research Lachlan Shaw said ‘Dr Copper’ would continue to reflect economic conditions broadly, although a “structural change around decarbonisation” would push copper demand and potentially price to historically high levels.

“The vast majority of net-zero pathways imply a two to three-fold increase in global electricity demand by 2050, and copper is the best material to transport electricity, so net-zero pathways imply a significant structural uplift in world copper demand,” Shaw said.

“Copper may actually become a more important barometer, not just of the general economic backdrop, but the pace of electrification needed to decarbonise.”

Newcrest chief executive Sandeep Biswas said the Australian gold and copper miner believed it was possible that copper supply gaps occur this decade, as the global economy moves towards decarbonisation.

“At the moment, copper represents around a fifth of our business, but the surge in demand and our ability to help meet it means we think it could rise to be around a third of our business,” Biswas said.

BHP president Minerals Americas Rag Udd also said in a speech earlier this year that the major miner anticipates strong demand for its copper.

“Our portfolio analysis under BHP’s Paris-aligned 1.5 degree scenario, described in our 2020 Climate Change Report, indicated that the world will need twice as much mined copper in the next 30 years as it has in the last 30 years,” Udd said.

Federal government trade data released on Monday showed Australian copper output had fallen in the last year as mine maintenance, weather and COVID outbreaks limited production, with lockdowns in China also hurting demand.

However, Australian copper earnings are forecast to grow an average of 9.3 per cent per year to $15 billion in 2023–24 as the long-term demand for clean energy continues, with Russia’s invasion of Ukraine also encouraging countries to move away from a dependence on fossil fuels.

Australian copper miners have fallen after recent copper price drops, with OZ Minerals – which owns the large Prominent Hill copper mine in South Australia –declining almost 30 per cent from its recent high of $24.70 per share in early June to close at $17.35 on Thursday.

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