What key factors drive the price of copper?

Robust demand has long been one of the strongest factors driving copper prices. The ever-growing number of copper uses in everyday life — from building construction and electrical grids to electronic products and home appliances — make it the world’s third most-consumed metal.

Copper’s anti-corrosive and highly conductive properties are why it’s the go-to metal for the construction industry, and it's used in products such as copper pipes and copper wiring. In fact, construction is responsible for nearly half of global copper consumption. Rising demand for new homes and home renovations in both Asian and Western economies is expected to support copper prices in the long term.

In recent decades, copper price spikes have been strongly tied to rising demand from China as the economic powerhouse injects government-backed funding into new housing and infrastructure. Industrial production and construction activity in the Asian nation have been like rocket fuel for copper prices.

Additionally, copper’s conductive properties are increasingly being sought after for use in renewable energy applications, including thermal, hydro, wind and solar energy.

However, the biggest driver of copper consumption in the renewable energy sector is rising global demand for electric vehicles (EVs), EV charging infrastructure and energy storage applications. As governments push forward with transportation network electrification and energy storage initiatives as a means to combat climate change, copper demand from this segment is expected to surge.

In 2023, EV sales worldwide increased by 35 percent over 2022 to come in at about 14 million units, and analysts at the international Energy Agency (IEA) expect that trend to continue in the coming years. Already in the first quarter of 2024, EV sales are up 25 percent over the same period in the previous year. New energy vehicles use significantly more copper than internal combustion engine vehicles, which only contain about 22 kilograms of copper. In comparison, hybrid EVs use an average of 40 kilograms, plug-in hybrid EVs use 55 kilograms, battery EVs use 80 kilograms and battery electric buses use 253 kilograms.

On the supply side of the copper market, the world’s largest copper mines are facing depleting high-grade copper resources, while over the last decade or more new copper discoveries have become few and far between.

The pandemic made the situation worse as mining activities in several top copper-producing countries faced work stoppages and copper companies delayed investments in further exploration and development — a challenging problem considering it can take as many as 10 to 20 years to move a project from discovery to production. In addition, delayed investments amid the pandemic will also have long-term repercussions for copper supply.

Citi analyst Max Layton projected in April that copper demand will outstrip supply by 1 million MT over the next three years, leading to a bull market for the red metal. "Explosive price upside is possible over the next two to three years," he noted.

Joe Mazumdar of Exploration Insights told INN by email at the end of Q1, “Most analysts are modeling growing deficits in the copper market balance by 2027-2028, with a near-term forecast (2024-2026) hinting at surpluses until then; however, recent developments suggest a shift toward deficits by late 2024 due to production shortfalls by large producers."

This is largely due to ongoing production issues at major copper mines, most notably the shutdown of First Quantum Minerals' (TSX:FM,OTC Pink:FQVLF) Cobre Panama mine, which accounted for about 350,000 MT of the world's annual copper production.

This means end users may need to turn to the copper scrap market to make up for the supply shortage. Sometimes referred to as “the world’s largest copper mine,” recycled copper scrap contributes significantly to supplying and balancing the copper market.

How has the copper price moved historically?

Taking a look back at historical price action, the copper price has had a wild ride for more than two decades.

Sitting at a low of US$0.73 per pound in early June 2001, the copper price followed global economic growth up to a high of US$3.91 in April 2008. Of course, the global economic crisis of 2008 soon led to a copper crash that left the metal at only US$1.29 by the end of year.

Once the global economy began to recover in 2011, copper prices posted a new record high of US$4.58 per pound at the start of the year. However, this high was short-lived as the copper price began a five year downward trend, bottoming out at around US$1.95 in early 2016.

Copper prices stayed fairly flat over the next four years, moving in a range of US$2.50 to US$3 per pound.

Why did the copper price hit an all-time high in 2024?

The price of copper reached its highest recorded price of US$5.20 per pound, or US$11,464 per metric ton, on May 20, 2024. How did it get there?

The red metal started out the year at US$3.86. Throughout the first quarter of 2024, copper prices were lifted by tightening supply and increasing demand from the transition to renewable energy.

While elevated supply levels kept copper trading in the US$3.50 to US$3.80 range until mid-March. Since then, copper has experienced strong gains, reaching a Q1 high of US$4.12 on March 18.

Those gains were attributed to in part to tighter copper concentrate supply following the closure of First Quantum Minerals' (TSX:FM,OTC Pink:FQVLF) Cobre Panama mine, guidance cuts from Anglo American (LSE:AAL,OTCQX:AAUKF) and declining production at Chile’s Chuquicamata mine. In addition, China’s top copper smelters announced production cuts after limited supply led to lower profits from treatment and refining charges.

BHP's (ASX:BHP,NYSE:BHP,LSE:BHP) potential takeover of Anglo American (LSE:AAL,OTC Pink:AGPPF) has stoked fears of even tighter global copper mine supply.

The tight supply side challenges have continued to juice copper prices in Q2, causing a jump of nearly 29 percent from US$4.04 per pound on April 1 to its all-time high of US$5.20 by May 20.

Some of that dramatic run up in the copper price was also been fueled by speculative buying on the futures market as investors anticipate that the Fed will soon begin to reverse course on interest rates and make at least one cut or possibly up to three cuts in 2024. Rising inflation and interest hikes by the Fed over the past two years has been responsible for some of the downward pressure on the price of copper.

Copper’s rally in recent years has encouraged bullish sentiment on prices looking ahead. In the longer term, the fundamentals for copper are expected to get tighter as demand from sectors such as EVs and energy storage increases, and as governments around the world push for green energy transitions. A new report from the International Energy Forum (IEF) projects that as many as 194 new copper mines may need to come online by 2050 to support massive demand from the global energy transition.

By 2031, McKinsey expects demand from power generation, EVs and electronic devices to push the copper supply deficit to 6.5 million MT. Looking over to renewable energy, according to the Copper Development Association, solar installations require about 5.5 MT of copper for every megawatt, while onshore wind turbines require 3.52 MT of copper and offshore wind turbines require 9.56 MT of copper.

The rise of artificial intelligence (AI) technology is also bolstering the demand outlook for copper. Commodities trader Trafigura has said AI-driven data centers could add one million MT to copper demand by 2030, reports Reuters.

Where can investors look for copper opportunities?

Copper market fundamentals suggest a return to a bull market cycle for the red metal in the medium-term. The copper supply/demand imbalance also presents an investment opportunity for those interested in copper-mining stocks.

Are there any copper companies on your radar? If you’re looking for some inspiration, head on over to INN's articles on the top copper stocks on the TSX and TSXV, and the biggest copper stocks on the ASX.

Looking to diversify your portfolio with other investment options, check out copper ETFS and ETNs or copper futures contracts. Nick Hodge, publisher at Digest Publishing, told INN in a May 2024 interview that one of the ways he is playing copper is with the iShares Copper and Metals Mining ETF (NASDAQ:ICOP).