Copper – Entering Into A Re-Invention Phase

  • October 23, 2019 04:01 PM BST
  • Kunal Sawhney
    CEO Kunal Sawhney
    2410 Posts

    Kunal Sawhney is founder & CEO at Kalkine and is a richly experienced and accomplished financial professional with a wealth of knowledge in the Australian Equities Market. Kunal obtained a Master of Business Administration degree from University of T...

Copper – Entering Into A Re-Invention Phase

Copper the oldest known and the most important industrial metal of the modern era, is about to enter into a new phase of growth as the human race leaps into its new phase of evolutionary change. A paradigm shift is taking place in the way we transport; the world suddenly seems to have got into the fancy of dumping its age-old internal combustion engine for the swift and silent electrical motor engine. This shift in preference could see a growth phase in demand for this metal like one that has never been seen in the history of this metal.

When electricity was first discovered, soon a demand emerged for a metal which can not only convert the magnetic power to electricity most efficiently but can also transport it over long distances without significant losses. It was soon discovered that the metal that satisfies this criterion the best was none other than copper. Since then neither the demand for this metal has come down nor has the pace of human development.

Other than being a good conductor of electricity, copper is also a good conductor of heat, it is used as a building material, as a constituent of various metal alloys, such as thermocouple devices for temperature measurement, cupronickel used to make marine hardware and coins, constantan (a copper-nickel alloy ) used in strain gauges and also in sterling silver used in jewellery measurement. The metal during its history has also been used s a currency in many civilizations along with other precious metals like gold and silver.

Copper is often viewed as a good indicator for the global economic conditions. Accordingly, copper demand has been growing in line with global economic growth, which makes copper a good metal to represent the economic cycle. Backing this, the growth trend in global refined copper demand and global GDP growth in the past 55 years display a decent positive correlation.

Demand drivers of Copper

There are various factors that drive the demand of the copper, below are the two main factors that could drive most of the demand for the metal during the next decade.

The electric vehicle revolution

The world is entering into a phase where demand for electricity will outstrip the growth rate of all other sources of energy. The production, transmission and distribution of all the electrical energy will require huge quantities of copper. The metal, with its excellent electrical conductivity and unavailability of suitable price-competitive substitutes, would be the key metal wherever electricity is required. Electric vehicles will be a key driver of copper demand. The transition to electric vehicles (EVs) from internal combustion engine vehicles (ICEVs) is inevitable despite controversies over the speed of implementation. With a battery-powered electric vehicle (BEVs) containing four times as much copper as an ICEV (80kg versus 20kg), the red metal is expected to emerge a big winner from the electrification of light-duty vehicles.

The electric vehicle, or EV market will register strong growth. This is attributed to in part to purchasing incentives as part of sovereign policy of different countries in support of electric vehicles (EVs), high consumer acceptance of electric vehicles, cheaper batteries due to substantial capacity expansion, and fast-expanding charging infrastructure in cities.

China has been actively promoting the adoption of electric vehicles. In September 2014, it introduced an exemption for EVs and HEVs from the 10 per cent purchase tax. The tax exemption which was set to expire in 2017 has now been extended to 2020. China’s policies are also increasingly becoming selective for better quality, higher performing EV’s. This year, the country lifted the subsidy requirement on a single-charge vehicle from 100 km to 150 km range. Also, the subsidies given to the higher-range models have been raised.

North America, led by the US, will remain the second-largest EV market for the next decade, followed by European countries.

The renewable energy sector

Renewable energy growth is expected to accelerate copper demand growth. Renewable energy uses copper more intensely than conventional power generation – copper usage per megawatt-hour of offshore wind and solar power generation is significantly higher than that for coal or nuclear power generation. Based on International Energy Agency (IEA) forecasts on global average annual net capacity addition between 2017-2040 (74GW for solar photovoltaic, 50GW for wind and 36GW of all other renewables), 635 thousand tons of copper demand will be generated every year on average until 2040. The IEA also expects renewables to contribute nearly 40 per cent of the total power generation by 2040, led by the strong adoption of solar photovoltaics in China and India.

As such, the expansion of renewable energy globally should be another driver of copper demand going forward.

Demand based on countries

China currently is the largest consumer of Copper. According to the International Copper Study Group an inter-governmental body of copper producing and consuming countries. The greatest demand of this metal is expected to come from China, followed by the United States of America, Germany and Japan. The compounded annual growth rate of the world demand for this metal will be close to 3.1 per cent (2017-22).

Supply of Copper

The real ore availability is expected to be limited despite capacity growth over the decade. Mine capacity has grown, but utilization has declined during the course of time. Global copper production increased at a CAGR of 2.5 per cent from 2000 to 2017, lower than the global mine capacity growth of 3.1 per cent. This is because of the drop in the utilization ratio over the same time period – declining from over 90 per cent to mid-to-low 80 per cent. The major reasons behind the lower utilization ratio could be the declining ore grades and rising cash costs as mines age; the lack of new major mine discoveries; as well as growing social instability, including labour strikes at major mines.

There could be obstacles in the ramp-up of ore production going forward too. In addition, capex intensity for mines is another concern for mining costs going forward, having doubled over the last 10 years. In light of currently developing mine projects and mine shutdowns.

South and Central American countries account for nearly 41 per cent of global copper ore production. Chile is the largest copper ore producer in the world; however, it has been witnessing a substantial decline, and the proportion is set to decline further. Peru is the world’s second-biggest copper ore producing country. In Asia the production in China and Indonesia, the two major producers of the continent remain sluggish. Overall one-fifth of the global production volume remains subject to potential disruption for various reasons.

Phoenix Copper Limited

Phoenix Copper Limited is the United Kingdom domiciled, base and precious metal explorer and developer with operations based in North America. The company is fast-tracking the Empire Mine in Idaho, the USA which was a historical producer of the metal. The company is also exploring for cobalt in Idaho as well. The company’s Phoenix's flagship project is a brownfield one, a historical producer of silver, zinc, copper, gold, and tungsten underground mine, located in the Empire Mine in the vicinity of Mackay in Idaho USA.

The shares of the company are listed on the AIM market segment of the London Stock Exchange where they trade with the ticker name PXC.

The company on 21 October 2019, came out with the report on the geology and mineral potential of the Red Star and White Knob Mine Group along strike to the north of the company's Empire Mine copper oxide deposit in Idaho USA.



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