Over the last year, the copper price has taken a further leg up, from $6,000/ t to over $7,000/ t. Indeed, recent trading levels have been higher than our last estimate of the incentive price, or long run marginal cost (LRMC), required to build new brownfield or greenfield mining projects, which was set at $3.00/ lb ($6,614/ t).
With a more compelling electric vehicle (EV) story now being told, many argue the copper market will face such heavy deficits by the mid to late 2020s that the long run price will have to be much higher than this in order to attract sufficient investment.
The EV demand forecast fog is clearing While there remains considerable uncertainty over future EV production levels, 2017 witnessed a number of policy commitments aimed at phasing out the internal combustion engine (ICE) by governments around the world. The most significant of these came from China, where in November 2017 the government announced a new framework of policies comprising a potpourri of production quotas, fuel efficiency targets and credit trading schemes.
As a result, not only are our EV forecasts higher than a year ago, but pure battery electric vehicles (BEVs) that consume around 80 kg of copper per vehicle, compared to 30-55 kg in hybrid models, now account for upwards of 50% of the total compared to less than 30% previously. In addition, the infrastructure piece should not be forgotten as it could add 30-50% to copper demand over and above that just in the vehicles themselves. This is not just charging points, although they are important especially if impatient drivers insist on ultra fast charging. The associated growth in renewable energy is also a potential boon to copper demand because on a per megawatt (MW) basis it generally requires more electrical windings, associated cabling and central infrastructure such as transformers, inverters and switchgears. Beyond that the electrification of the transport sector will necessitate additional investment in distribution networks and substations as well as the development of energy storage solutions.
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