Copper Outlook
Consumption
Copper is a very useful metal with hundreds of applications in the areas of electricity and electronics, plumbing, building construction, architecture, manufacturing, transportation, and consumer and health products. In fact, the world uses more than 19 million tonnes of copper every year. As the world’s leading economies continue to urbanize and industrialize, refined copper demand is expected to increase to more than 25 million tonnes by 2020.
Copper plays an essential role in computers, smartphones, electronics, appliances and construction, but it is also a metal at the forefront of green innovation. Hybrid and electric cars rely on copper, as do renewable energy sources such as solar power, wind farms, and thermal and hydro-electricity.
Most of the world’s copper (62%) is consumed in electrical wires because, with the exception of silver and gold, copper has the highest electrical conductivity of all the metals. Low voltage energy cable (mainly building wire) is the largest of the wire and cable markets. Usage of building wire is increasing in both mature and developing economies as higher power quality is achieved from installing additional circuits and heavier wires and cables. Power distribution cable is the second largest use of copper and government investments in infrastructure and power utilities will continue to drive demand growth for power cable.
Copper tube, which accounts for around 10% of global copper consumption, is used in plumbing and in heating, ventilation and air conditioners and refrigeration (HVACR). Improved living standards in the developing economies, leading to higher demand for air conditioners, continues to boost demand for HVACR tube.
Copper alloys such as brass, bronze and cupronickel are widely used in manufacturing. Since copper-nickel alloys have strong antimicrobial properties, they are used as hygienic "touch materials" to reduce cross-contamination and infections, particularly in hospital intensive care units.
Demand
Copper mining is a capital intensive business and once the metal has been extracted from the ground, a new source has to be developed. Costs are increasing as we see deeper and more remote mines, lower grades and more complex metallurgy. Copper miners have reduced capital expenditures over the past several years in response to shareholder demands and have mothballed potential new projects. After five years in decline, copper prices have turned positive reflecting the stronger fundamentals for the market. However, despite enhanced balance sheets and improved expectations about the outlook for copper, production growth is still being carefully balanced against the need to maintain financial discipline.
Given the long lead times required to bring new capacity into production, copper producers should ideally be positioning themselves now for the anticipated recovery by building new mines. Unfortunately, the market reality in this cyclical industry, with squeezed margins and wary shareholders, means that in most instances, this is not possible. Without another wave of major project investment over the next few years, the copper market will be unable to avoid another period of substantial supply deficits emerging beyond 2021. This deficit will result in an increase in the price of copper to levels where producers are again incentivised to build new mines. Wood Mackenzie, a leading expert in the copper market, believes that a long term copper price in the region of $3.50 /lb ($,7700/t) would be sufficient to incentivise sufficient new greenfield capacity.
Prices
Information Sources:
Wood Mackenzie
Rio Tinto
Copper Development Association Inc.
International Copper Study Group