The silent copper crisis is putting major investors around the world on alert

“Copper is at the heart of the electricity market, you need it for everything,” confirms Benjamin Louvet, director of raw materials at the French manager Ofi Invest AM, as electricity production is not possible without this material; The same thing is happening in the technology sector, with popular data centers. For example, a wind turbine requires up to five tons of copper, or an electric car requires four times as much metal as a combustion engine. As an added bonus, “the size of the global electrical grid must be doubled for the energy transition to be possible: going from 70 million kilometers today to 140 million kilometres,” he said, stressing that “this means we have to be concerned about the situation” of a supply crunch because it could put certain projects at risk.

At this time, according to International Energy Agency (IEA)There are 250 copper mines in operation in the world, but to comply with decarbonisation agreements, it will be necessary to open another 80 mines to cover the energy transition. However, according to experts, it takes an average of 17 years to open a new mine. “We are already late, the problem is here,” Lovett laments, stressing that in 2030 there will be a supply deficit of 20% in the copper market and 30% in 2035.

Christine Hüttner, head of commodities and portfolio manager at Vontobel, goes further than just the lack of new mines. This expert highlights that there are problems with copper supplies due to the cessation or decline of production in the main mines that already exist globally in Indonesia, Chile and Congo… In addition, the extraction of this substance is becoming increasingly more complex, due to legislation against it. “We are likely to see countries like the US, China and many countries in Europe start building strategic copper reserves to ensure future supplies,” he says. Save copper so that your economies do not lack it in the medium and long term. This is pointed out by Michael Widmer, head of metals studies at Bank of America “The deficit is primarily structural.”Fewer projects are being developed and there is a disruption in supply. In addition, the problem is exacerbated with China, which is the big driver of demand because it is one of the countries that devotes most of its efforts to electrifying its economy.

Projects are at risk

Daniel Lorsch, Lead Manager of the Strategic Materials Fund at JSS AM, agrees with the problems generated globally by the energy and technology transition by the fact that the supply of copper cannot match the demand, although so far, at the moment, “there is no shortage affecting the implementation of projects”. However, it recognizes that in addition to strong demand, “mining outages or geopolitical issues in key copper-producing regions could generate a risk of future shortages.” In addition to all this, the two global powers, the United States and China, are manipulating the tariff policy on copper as part of their trade war, which increases market pressures.

Given this situation, investors believe that there will be an explosion in copper prices that will hurt demand. “There is a risk that copper prices will rise so high that they suppress demand, especially in sectors such as electric vehicles and renewable energy, where costs are already a deciding factor,” Hüttner says. “At some point, high prices could make projects economically unviable, slowing adoption and investment in these technologies.” However, in any case, he does not believe that it is radically negative for an increase in prices to lead to a decrease in demand because it will have a balancing effect on the market. “What will happen is that demand will have to be reduced. Since we will not be able to increase supply, we will have to destroy demand, and the only way to destroy demand is through a very strong increase in prices. “I think people still don’t fully understand what’s going on with copper,” Lovett says.

This price increase, according to experts, could also encourage new investments in copper mines since their profitability could rise significantly. Although publishing depends not only on price, but also on organization. “The price of copper must rise to encourage new investment. It should rise by at least 50% compared to the current level,” which is currently around $10,000-11,000 per ton, in the area of ​​historical highs.

Beyond deploying new mines, further exploiting existing mines, and facilitating regulation, experts also point to the need to resort to copper recycling in order to maintain supply. The French Institute of Petroleum and New Energies estimates that more than 90% of current copper resources will be exhausted by 2050, making reuse of existing materials key, according to investors. “Recycled copper already represents nearly a third of global supply and will play a major role in balancing the market in the coming years,” asserts Hüttner.