Is Copper becoming the new Lithium?

Norway, Sør-Trøndelag region, Røros, UNESCO World Heritage Site, old mining town, Olavsgruva old copper mine

The International Energy Agency or IEA presented data portraying a roadmap for increasing demand for the metal in the future. The report, The Role of Critical Minerals in Clean Energy Transitions, predicts that 45% of the highly conductive metal will be used up by the energy sector in 2040 under its “sustainable development scenario.”

By Robel Ramos

The global mining industry, especially investors looking for inflation-beating returns, has experienced many peaks and troughs in 2022. Those with investments in a specific commodity have performed better than other pockets of the business. However, 2022 may not go down as a victorious year for some metals.

The IEA also revealed that high levels of mineral concentration could mean the system is prone to disruptions – usually caused by geopolitical activities, pandemics, natural calamities, or even shutdowns due to unfavorable environmental, social, or political incidents. Policy strategies have to be in place to safeguard the market against supply disruptions.

Unlike lithium, the price of copper – which was predicted to strengthen – went south throughout the year. In quantifiable terms, the price of lithium has ballooned and has gone up by more than 100%. In the case of copper, a chunk of this highly conductive metal is going for 15% less. The stark contrast between the two minerals has played out despite lithium and copper being seen as likely to benefit from the electrification trend.

Some experts believe that this scenario might change next year, and this will benefit the global mining industry in general. Supply and demand play a vital role in all commodity prices. It is for this reason that Goldman Sachs is expecting great things from copper by next year.

Goldman Sachs predicts that this metal will probably attain new record highs and could even reach a high price of US$11,000 per ton. Its bullish forecast does not come without reason. The broker is estimating a 178,000-ton copper deficit by 2023.

Goldman Sachs had previously forecast a 169,000-ton surplus, betting on new supply coming online. However, forecasts are suggesting that there might not be any additional supply. Any such falling off in supply could boost prices if demand for copper holds steady or increases. This scenario is what copper investors would be happy to see – especially in light of its rather poor performance this year.

The International Energy Agency or IEA presented data portraying a roadmap for increasing demand for the metal in the future. The report, The Role of Critical Minerals in Clean Energy Transitions, predicts that 45% of the highly conductive metal will be used up by the energy sector in 2040 under its “sustainable development scenario.” Under these conditions, operating (current) and under-construction (future) supply will fall short of demand by 2025. The report also depicted that the gap between supply and demand is expected to widen for the foreseeable future.

However, if the metal enjoys a rise that is similar to lithium in 2022, the returns from ASX copper shares could be considerable. After all, some of the best-performing investments on the Australian market this year have been in lithium.

Some experts believe that this scenario might change next year, and this will benefit the global mining industry in general. Supply and demand play a vital role in all commodity prices. It is for this reason that Goldman Sachs is expecting great things from copper by next year.

Some of the biggest lithium names in 2022 include the following:

• Rio Tinto Limited (ASX: Rio) up 18% • Mineral Resources Ltd (ASX: MIN) up 65% • Pilbara Minerals Ltd (ASX: PLS) up 47% • Allkem Ltd (ASX: AKE) up 36%

Some of the biggest ASX-listed mining companies with exposure to copper are BHP Group Ltd (ASX: BHP), Newcrest Mining Ltd (ASX: NCM), IGO Ltd (ASX: IGO, and also Rio Tinto Limited.

Processing Plant at Lithium Mine in Western Australia. Mechanical processing used to refine lithium spodumene concentrate.

IEA Reports: Processing of Critical Minerals Dominated by China

In related news, vital minerals used for clean energy are reportedly being dominated by China, accounting for 58% of Lithium processing. The International Energy Agency or IEA earlier said, minerals and metals used to produce clean energy technologies are being dominated by China.

These raw materials are most vital in the manufacturing of climate control technologies such as renewable power, carbon capture, battery solutions, E-Vehicles, hydrogen production, and more. The IEA’s Critical Minerals Policy Tracker said that if the supply of these materials does not meet the demand, prices for energy transitions could skyrocket or even delay the transition and make it less efficient. Currently, China accounts for 87% and Malaysia 12% of rare earth processing capacity for certain minerals and fossil fuels used in climate technologies. For lithium, Chile follows China with 29% while Argentina accounts for 10%. China also leads in the Cobalt share with 65% – Finland is second with 10% and Belgium pegged at 5%.

In Nickel and Copper processing, China is ahead by 35%, and 40% respectively. Nickel and Copper are the most vital raw materials in renewable energy solutions. Completing the list in Nickel processing are Indonesia with 15% and Japan with 8%. Chile and Japan followed China with 10% and 6% respectively in Copper processing.

Despite these figures, China is not the top producer of many of these critical raw materials. In the case of Lithium, for example, Australia accounts for a 52% market share followed by Chile with 22%, and China with only 13%. Cobalt extraction on the other hand is dominated by the Democratic Republic of Congo with 69% while Russia and Australia account for 4% each.

For nickel, two Southeast Asian nations top the list – Indonesia leading with 33% followed by the Republic of the Philippines at 12%. Russia comes in close with 11%. Copper is extracted the most in Chile which has a 28% share, Peru accounts for 12%, and China only contributes 8%. Graphite, however, is extracted the most in China which accounts for a 64% market share. The case is similar for rare earth with China contributing a 60% share.

Antimony, arsenic, germanium, gold, hafnium, iridium, iron, magnesium, niobium, and tungsten as minerals were also largely dominated by at least one country. These minerals, however, are not needed in large quantities for the energy transition at the moment.

One of the leading examples of international collaboration structures that expressly target the security of supply is the Minerals Security Partnership or MSP. This partnership was convened by the United States in June 2022 in order to protect the supply chain of critical minerals.

The Minerals Security Partnership has brought on board mining leaders like Australia, Canada, Finland, France, Germany, Japan, Korea, Sweden, the United Kingdom, and the European Union. It aims to strengthen the supply chain by encouraging countries to share information and promote larger investments. The partnership is also looking into the creation of recycling technologies. †