Why copper is the metal of the future
09:08, 14 February 2019
What is copper?
Copper is a soft, malleable and ductile base metal that is known for its high thermal and electrical conductivity. It has a pinkish-orange colour, and is used as a conductor of heat and electricity, building material and as a constituent of various metal alloys.
As a native metal, copper is part of a small group of metallic elements that are usable in their organic state. It was first harnessed by humans at least 10,000 years ago and has been used to produce almost everything from coins to ornaments.
Copper is used today to manufacture a variety of products necessary for modern life, from cars to electronics. Perhaps it is because of this that copper demand has grown in line with global economic growth, making copper a reliable metal with which to track the business cycle over the long term.
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Where is copper found and how is it extracted?
Copper metal is found in natural ore deposits around the globe. The metal is extracted through mining and processing. Copper is processed from ore-containing rock to its final product. As one of the highest-quality commercial metals, copper production ensures the mineral is able to find its uses in many modern-day applications.
As a mineral, copper naturally occurs throughout the earth’s crust in both sedimentary and igneous rocks. The outer 10km of the earth’s crust contains approximately 33 grams of copper for every tonne of rock. In some places, millions of years ago, volcanic activity deposited molten copper in a single location – it is here that copper extraction happens today due to the intense profitability of these areas.
Copper is extracted through the following process. The ore (containing copper) is mined from the earth and ground into powder. It is then enriched and concentrated, after which the enriched ore is roasted in air at temperatures between 500 and 700 degrees celsius. The copper-ore is then further refined by smelting it into a liquid, blowing air into it and refining it using electrolysis.
This process turns a rock containing about 0.2% copper to a copper cathode of 99.99% purity.
Modern uses of copper: What is copper used for?
Today, copper uses are abundant. These include
Building construction – copper is widely used all over the world for electrical wiring, waterproofing and plumbing of residential and commercial buildings;
Electronics – copper uses include integrated circuits, electromagnets, magnetrons, vacuum tubes, cathode ray tubes, etc.;
Transportation vehicles – copper’s strong conductivity makes it an important component in the production of electric motors;
Consumer products – copper is a strong antimicrobial material, which is used in cookware, doorknobs, bed rails etc.;
Musical instruments;
Industrial machinery – glassmaking, printmaking and engraving equipment is also created with the help of copper;
In addition, it is used in stills for producing whisky.
Copper uses are also a stable in wiring and plumbing and are integral to appliances, heating and cooling systems and telecommunication networks. The metal is a crucial element in motors, wiring, radiators, brakes and bearings used in cars and trucks. This is becoming increasingly more true with the inception of the electric vehicle.
Copper and electric vehicles
The electric vehicles industry is rapidly changing as market leaders debut new products, battery prices fall and government incentives continue globally. As this innovative market develops, the copper industry has found a new use for the mineral. Copper is an integral element in electric vehicle technology and supporting infrastructure.
The evolving copper industry will have a considerably important impact on the demand for the metal. Copper is essential to the technology underpinning electric vehicles as it is used throughout the vehicles themselves, their charging stations and support infrastructure – due to the metal’s durability, conductivity and efficiency.
There is speculation that copper consumption is entering a new growth phase driven by a society that is increasingly becoming ‘electrified’. With the electrification of energy, it is an expectation that demand for electricity will outpace the growth in total primary energy demand in the future.
The production, distribution and transmission will require a substantial amount of copper. Specifically, the future of electronic transportation may be a mega-trend for the increase in demand for copper. This is because copper is an excellent conductor of electricity and lacks price-competitive substitutes. Currently, around 72% of copper consumption is in the power and utilities sector, and in electrical products.
With sales of electric and hybrid-electric vehicles on the rise, up 65.7% in 2017 globally, the future demand for copper and copper products is set to increase dramatically. This is further facilitated by governments around the globe who encourage the use of electric vehicles through various schemes.
What causes movements in the price of copper?
Due to lagged delays on supply and demand data, the price of the copper commodity is driven more heavily by other factors. The economic performance of emerging markets are the main driver of copper prices. Developing economies such as China and India have an increasing demand for transportation and housing infrastructure, which raises the demand for copper.
Although there is a lag on the supply data, political unrest in South America has a huge effect on the price of copper. This is because a large amount of the global copper supply comes from countries in South America, such as Chile and Peru.
It is worth noting that, due to delayed data on supply and demand, the price of copper tends to trade more on market sentiment based on economic indicators, news and money flows in the broader economy.
Future price speculation of copper
Not only does the electric vehicle market look like its about to enter its strongest growth phase in the next 10 years, but society as a whole is becoming increasingly electrified – this means that people are relying on electricity more and more by the day.
Developments such as renewable energy are said to be a significant contributing factor, as this energy method has a higher intensity of copper consumption than conventional methods of power generation.
It is also worth noting that the consumption of copper has a twin-peak – this is where there are two peaks of copper consumption over the economic development phase. Initially, the consumption of copper in a country tends to increase in line with economic growth.
For instance, in the US and Japan, copper consumption reached its first peak at around 11 kg per capita, when gross domestic product (GDP) per capita was around the $20,000-30,000 mark. This occurs as rising demand for copper-intensive activities increases as the economy gets richer, such as investing in electric vehicles, wider electronics and infrastructure.
After such events, consumption then drops until replacement demand,caused by the need to replace existing goods, pushes it up again. The US and Japan reached the second peak at $40,000-50,000 GDP per capita. Considering that countries like China and India are yet to even reach their first peak, it is highly likely that future growth in copper will be a substantial trend.
Biggest miners of copper
When the price of copper is rising, investors in copper stock can take advantage of this through increased profits. Below is a brief explanation of some of the biggest companies in copper mining today.
Codelco is the largest of the copper miners and producers on the planet. Controlling around 19% of global copper reserves, Codelco is an autonomous company owned by the government of Chile. The company produced approximately 1.842 million metric tonnes of refined copper in 2017, roughly 11% of the world’s total, which would have been valued at $125 billion, according to late 2017 prices.
Freeport-McMoRan, founded in 1912, is the second largest copper producer in the world. Phoenix-based Freeport-McMoRan Copper & Gold Inc. is the world’s largest publicly trader copper producer. The firm’s assets include the Grasberg mining complex in Indonesia – the world’s largest copper mine in terms of reserves that are recoverable. They also own the Morenci and Safford minerals district in North America, and the Tenke Fungurume minerals district in the Democratic Republic of Congo. The company was sold to China Molybdenum for $2.65 billion at the start of 2017. In 2016 the company produced around 1.7 million metric tonnes of refined copper. Freeport-McMoRan posted revenues of $15.86 billion in 2017. The company is listed on the New York Stock Exchange (NYSE).
BHP Billiton is an Anglo-Australian international mining company and the third largest copper producer globally. BHP produced over 1.326 million metric tonnes of refined copper, and is also one of the globe’s largest producers of aluminum, silver and titanium. The company’s assets include a 57.5% interest in Minera Escondida; the largest copper-producing mine in the world. In 2016, BHP released data on its worst annual loss in history, with the company making a loss of $6.4 billion over a 12-month period. Their stock is listed on the London Stock Exchange (LSE), New York Stock Exchange (NYSE), Johannesburg Stock Exchange (JSE) and the Australian Securities Exchange (ASX).
Southern Copper, owned by the Mexican conglomerate Grupo Mexico, is one of the leading international copper mining companies. It also produces zinc, silver and lead. In 2017, Southern Copper Corp. produced 913,066 metric tonnes of copper. The firm’s major assets include the Cuajone and Toquepala mines in Peru, as well as the Cananea mine in Mexico. It is listed on the Lima Stock Exchange (BVL) and the New York Stock Exchange (NYSE).
Rio Tinto, founded in 1873, is an Australian-British international metal mining company, which is a big miner of copper. In 2017, the company produced approximately 478,000 metric tonnes of copper. The group owns a 40% share of the production from the Grasberg mine in Indonesia, which is the world’s second largest copper mine – currently owned by Freeport-McMoRan. The company is listed on the London Stock Exchange (LSE), New York Stock Exchange (NYSE) as well as the Australian Securities Exchange (ASX).
Anglo American plc is a South African production company, based in Johannesburg, and one of the world’s major copper miners. In 2017, the company produced 579,300 metric tonnes of copper. It is listed on the London Stock Exchange (LSE) and the Johannesburg Stock Exchange (JSE).
Top 10 copper mining countries
In summary
Copper has always been essential to modern society, with a vast list of extensive uses due to its price and conductivity. It is also one of the most traded commodities around the world. Its unique market has a tendency to trade on sentiment and expectation rather than fundamentals – this could be due to the time lag in the release of data on actual supply and demand.
Consequently, the price of copper tends to be correlated with economic indicators, as well as news and money flows in the broader financial market. However, with the further development of electric vehicles – and the broader electrification of society – copper looks set to have a substantial sustained increase in demand in the near-distant future.
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