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Copper Demand Is “Electric”—But Can Supply Keep Pace?

February 18, 2020

Read Time 3 MIN

 

Unlike copper demand, we believe global copper production is not healthy.

Despite the setback from the coronavirus, the outlook for copper is increasingly positive, fueled by demand from renewable energy (solar, wind, geothermal and electric vehicles or “EVs”) and a heightened risk to global production.

Copper Supply Stumbles

We believe that 2019 could be the first year since 2001-2002 (-1.1%) in which global production fell.

Why? The world's largest copper miners are failing to produce at projected levels: the industry continues to value margin over volume, with the result that growth capital is limited. In addition, existing mines get older and grades decline. According to The International Copper Study Group (ICSG), global mine production was 20.1 million tonnes in 2018 (up 3.6% from 2017). However, recently released data from ICSG indicate that production declined by about 0.7% in the first 10 months of 2019. 

Furthermore, newly released data from Cochilco (Chile's state copper agency) show Codelco's copper production between January and November 2019 fell by 6%. Codelco is the world's largest copper producer, accounting for approximately 19% of global production.

Although this fall in production reflects various mine and industry-specific issues, a more important announcement for the copper market was that of a pullback by the Chilean government from its intent to fund Codelco's copper growth projects.

The recent riots and protests in Chile, in response to higher subway fares, the increased cost of living, privatization and income inequality are expected to have a long-term impact on both Chile's industrial output and copper production. As other funding imperatives put pressure on the country's treasury, we believe that Codelco's current production profile is optimistic.

In light of this, the market is in the process of adjusting its numbers. By 2025, we can see production being 330-380kt lower than current projections. This constitutes approximately 5% of global supply.

Copper Demand Rolls On

The physical properties of copper—malleable, machinable, corrosion-resistant and an excellent conductor of both heat and electricity—make it an essential component of an environmentally friendlier world. "In 10 years’ time the most strategic metal on this planet is copper, if you believe the EV story, and I do," said Mark Bristow, CEO of Barrick Gold, at the Mining Indaba in Cape Town on February 6, 2020.1

The auto industry relies on copper for motors, wiring, radiators, connectors, brakes and bearings. While an internal combustion engine contains approximately 50lb of copper (luxury cars on average contain about one mile of copper), an electric vehicle contains approximately 200lb of copper—used in batteries, windings, rotors, wiring, busbars and charging points. As electric vehicle penetration grows, so demand for copper will increase, while mine supplies will face growing headwinds.

Copper Use in Electric Vehicles (EVs)
Copper Use in Electric Vehicles (EVs)

Source: ICA. December 2019. *Battery-size dependent

IMPORTANT DISCLOSURES

1Reuters: Barrick Gold denies Freeport-McMoran tie-up in the works, February 6, 2020, https://www.reuters.com/article/mining-indaba-barrick-gold/barrick-gold-denies-freeport-mcmoran-tie-up-in-the-works-idUSL8N2A63S7  

Please note that Van Eck Securities Corporation (an affiliated broker-dealer of Van Eck Associates Corporation) offers investments products that invest in the securities included in this commentary.

The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results. Information provided by third-party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as of the date of this communication and are subject to change without notice. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.

The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from Van Eck Associates Corporation or its subsidiaries to participate in any transactions in any companies mentioned herein. This content is published in the United States. Investors are subject to securities and tax regulations within their applicable jurisdictions that are not addressed herein.

ESG investing is qualitative and subjective by nature, and there is no guarantee that the factors utilized by VanEck or any judgment exercised by VanEck will reflect the opinions of any particular investor. Information regarding responsible practices is obtained through voluntary or third-party reporting, which may not be accurate or complete, and VanEck is dependent on such information to evaluate a company’s commitment to, or implementation of, responsible practices. Socially responsible norms differ by region. There is no assurance that the socially responsible investing strategy and techniques employed will be successful.

ESG integration is the practice of incorporating material environmental, social and governance (ESG) information or insights alongside traditional measures into the investment decision process to improve long term financial outcomes of portfolios. Unless otherwise stated within the Fund’s investment objective, inclusion of this statement does not imply that the Fund has an ESG-aligned investment objective, but rather describes how ESG information is integrated into the overall investment process.

All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results.

IMPORTANT DISCLOSURES

1Reuters: Barrick Gold denies Freeport-McMoran tie-up in the works, February 6, 2020, https://www.reuters.com/article/mining-indaba-barrick-gold/barrick-gold-denies-freeport-mcmoran-tie-up-in-the-works-idUSL8N2A63S7  

Please note that Van Eck Securities Corporation (an affiliated broker-dealer of Van Eck Associates Corporation) offers investments products that invest in the securities included in this commentary.

The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results. Information provided by third-party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as of the date of this communication and are subject to change without notice. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.

The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from Van Eck Associates Corporation or its subsidiaries to participate in any transactions in any companies mentioned herein. This content is published in the United States. Investors are subject to securities and tax regulations within their applicable jurisdictions that are not addressed herein.

ESG investing is qualitative and subjective by nature, and there is no guarantee that the factors utilized by VanEck or any judgment exercised by VanEck will reflect the opinions of any particular investor. Information regarding responsible practices is obtained through voluntary or third-party reporting, which may not be accurate or complete, and VanEck is dependent on such information to evaluate a company’s commitment to, or implementation of, responsible practices. Socially responsible norms differ by region. There is no assurance that the socially responsible investing strategy and techniques employed will be successful.

ESG integration is the practice of incorporating material environmental, social and governance (ESG) information or insights alongside traditional measures into the investment decision process to improve long term financial outcomes of portfolios. Unless otherwise stated within the Fund’s investment objective, inclusion of this statement does not imply that the Fund has an ESG-aligned investment objective, but rather describes how ESG information is integrated into the overall investment process.

All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results.