Putting the Copper Horse Before the EV Cart: Copper Demand in the EV Market
The electric vehicle market and copper demand are intrinsically connected as copper is essential for electric vehicle supply and charging infrastructure.
The electric vehicle market and copper demand are intrinsically tied together as the globe continues to adopt clean energy initiatives.
Along with other traditional base metals like nickel and aluminum, copper finds itself caught by two long term market forces. The first is a gradual global push to reduce greenhouse gas emissions (GHG) in transportation, utility and manufacturing sectors.
Secondly, mass commercialization of low or zero GHG energy sources and associated battery storage solutions. Likewise, copper will be part of future electric vehicle supply chains and related infrastructure, making the electric vehicle (EV) market and copper demand intrinsically connected.
Copper is the best non-precious metal for conductivity of electricity and is one of the most recycled metals globally. It is extremely ductile, corrosion-resistant and can be alloyed with a variety of other metals to suit many end-uses. Because of these properties, copper is needed in many areas of an EV: the motor, inverter, wiring and battery storage.
Frost & Sullivan suggest that EV sales could reach 25 million by 2025 from the current 1.2 million due to production costs reaching parity with conventional cars in 2020. However, Bloomberg NEF is a bit more conservative suggesting just 11 million EVs will be sold by 2025, but surging to 30 million in 2030 as EVs become cheaper than conventional vehicles.
Copper in electric vehicles and infrastructure
Although a lot of attention is given to critical metals like cobalt, lithium, and vanadium in EVs and battery storage, base metals like copper should not be overlooked. Likewise, the necessity of EV infrastructure is also treated as an afterthought. However, without mass availability of charging infrastructure, the mass uptake of plug-in EVs will be significantly challenged.
Just like gas stations for fossil fuel-based vehicles, individual consumers and businesses need certainty that EVs can be ‘refueled’ in a convenient way. Those thinking about EV purchases will focus on three aspects: cost, reliability and the availability and certainty of EV charging infrastructure.
Unlike cobalt, lithium and other critical metals, copper is expected to have a uniquely integrated role in the gradual electrification of economies. Copper is not just used in battery storage, but is also essential in their charging infrastructure. This is bound to increase demand for the metal, placing a significant pressure on current copper supply rates.
Copper markets: Current state and future expectations
Although copper is easily recyclable and loses none of its characteristics and performance, the global demand and supply for copper is not expected to become a completely closed loop. The International Copper Study Group (ICSG) explains that an increasing global population and the fact that copper is locked away in end-uses, like wiring and piping, make this unlikely.
Annual mined copper production only retreated seven times in the span of 65 years (1960-2015) and only marginally. Growth of mined copper has risen steadily from roughly 3.9 million metric tons in 1960 to well over 20 million metric tons by 2016, according to the ICSG.
In 2017, Chile, Peru and China supplied roughly 48 percent of global mined copper production. Chile, producing 5.3 million tons in 2017, is the largest mined copper producer. Chile’s reserves are estimated to be a staggering 170,000 million tons and nearly twice that of Peru.
Focus Economics analysts suggest that implementation of metals tariffs, a slowdown in China’s economy and ample supply now that BHP Billiton (ASX:BHP,NYSE:BHP,LSE:BLT) has avoided a strike at their Escondida mine are reasons for the recent copper price drop from US$7,261 in June 2018 to US$5,842 in August 2018. However, they do expect prices to rise in the medium to long-term.
The electric vehicle market and copper demand
Projecting a slower adoption of electric vehicles, Shinzuo Abe, Toyota’s Powertrain General Manager, suggests that by 2030, forty percent of total automotive sales will be hybrids and there will be a smaller representation of plug-in hybrids and all-electric EVs. According to Toyota “battery cost, weight, capacity fade, and lack of charging infrastructure,” are key reason reasons why adoption of plug-in hybrids and all-electric EVs will be very gradual.
WoodMac has indicated that adoption of EVs globally will displace demand for refined fuels causing peak oil demand in 2036. BP (NYSE:BP) also suggests a similar timeframe as EVs continue capturing market share.
So, could there be a correlation between copper supply and peak oil demand? Indeed, this may be the case.
In April 2018, CRU Group Analyst, Hamish Sampson, suggested that unless new mine production comes online soon, global copper mine production could plummet from roughly 20 million tonnes per year to less than 12 million tonnes by 2034. About 200 copper mines are expected to reach their productive end of life by 2035.
Sampson believes that “only if every single copper project currently in development or being studied for feasibility is brought online before then, including most discoveries that have not yet reached the evaluation stage, the market could meet projected demand.” This outlook could be a significant barrier to the uptake of EVs as they contain significantly larger amounts of copper than conventional vehicles; roughly twice or three times as much. A battery powered electric bus can contain between 224 kilograms and 369 kilograms depending on battery type. In addition, the cost to install plug-in EV charging infrastructure would significantly escalate.
Another factor to consider is the global decline in copper grades, which AME Research has suggested is caused by ore grade decline at large copper mines and because new mines coming online are producing lower-grades. Supply of lower copper grades could impact prices as more production and processing are required to supply the market appropriately.
Future impacts of a supply shortage
The effects of a copper shortage could impact broader electrification not just within the transportation, but also utility and manufacturing sectors. The ability for policy makers and industry to achieve meaningful GHG reductions would be significantly hindered.
Recycled copper alone cannot supply a growing global population, the modernizing of emerging economies and a gradual shift away from the combustion of hydrocarbons. In fact, the CRU group anticipates that even in conservative scenarios, clean technology adoption could boost copper demand by 10 percent to 15 percent by 2030.
However, the need for charging infrastructure where copper plays a key role may tempered by a couple factors. Gradually increasing EV range would be one factor, which has already increased 56 percent from 2011 to 2017. It could also occur through self-powered EVs which would negate the demand for stationary charging infrastructure. The Sion, for instance, is being released in 2019 by Sono Motors and will have 330 installed solar cells on the hood.
The potential for a copper supply shortfall in the coming decades is good news for exploration companies in the space. Several Canadian-based exploration companies are seeking to develop properties in North American jurisdictions.
Earlier this year, Aurex Energy Corp. (TSXV:AURX) announced the discovery of high grade gold and copper at its Cook Project, and high grade copper, zinc and cobalt at its Whiskey Flat Project, both in Nevada. Copper rich targets have also been located on its Craig Lake project in Saskatchewan, near Flin Flon, Manitoba. There is also significant copper potential at the Peter Lake project in Northern Saskatchewan.
NorthIsle Copper and Gold (TSXV:NCX) is looking to advance copper-gold projects west of Port Hardy on Vancouver Island’s north tip. A 50-kilometer porphyry district contains the Hushamu and Red Dog deposits, and North West Expo and Pemberton Hills targets, the latter of which has attracted a joint venture commitment from copper giant Freeport McMoRan (NYSE:FCX).
Copper Fox Metals (TSXV:CUU), meanwhile, is involved in copper exploration in BC, Canada, where they have partnered with Teck Resources for the development of the Schaft Creek copper-gold-molybdenum-silver project. The project hosts proven and probable reserves of 940 million tonnes grading 0.27 percent copper, 0.19 g/t gold, 0.018 percent molybdenum and 1.72 g/t silver.
While it may be a stretch to suggest that availability of copper is the only factor to impact peak oil demand, it may a very significant one. Copper should be considered vital in three ways: first, it is needed for production of EVs that require a lot more copper than conventional cars. Secondly, it is critical to the mass uptake of plug-in EVs that require significant charging infrastructure upgrades. Finally, without a proper copper supply in place, the uptake of critical battery metals like lithium, cobalt and vanadium may be hindered.
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