Copper and the green economy

Copper and the Green Economy

Copper is included among rare metals and according to USGS, to date approximately 700 million metric tonnes of copper have been mined in the world. In terms of weight this is equivalent to the weight of 850 golden gate bridges. So although copper is rare, it is not as rare as gold or platinum. Balanced between rarity and having the ability to conduct heat and electricity excellently, copper has been a very important metal, driving global growth and development.

Importance of Copper

Copper has a direct influence on our lives, everytime we use a computer or a phone, we have to rely on copper that is present in the chipsets of our devices. Everytime we switch on our light, we have to rely on copper to conduct the electricity from the electricity generation plants to our homes, through the transmission lines. Everytime we switch on the engine of our cars, we rely on copper to power various electronic functions of our cars. In other words, copper is used in a wide range of industries including construction, technology, automobiles, power generation and transmission etc.

As we consume more goods that use copper, the demand for copper increases and this increase in demand results in an increase in the price of copper. From an investment perspective, the last two decades in particular have been very profitable for copper stocks, as the growth in the tech sector has driven the demand for copper upwards.

The chart above shows the price movement for copper futures over the last three decades. This bullish trend in the price of copper futures over the last two decades corresponds with the fintech revolution, which has increased the demand for copper in the tech sector.

The increase in copper future prices since 2020 has in particular been far greater than any time in the past and this sharp increase can be attributed to the increasing global shift towards sustainability and green economy.

Copper and Sustainability

Copper has to be mined from the earth and thus at first instance the words copper and green economy seem odd to be used together. Copper, it turns out, is one of the most crucial metals for the whole green economy movement.

We have already discussed how widely copper is used in almost every industry. Copper is one of the most important raw materials for the power generation and transmission industry. Interestingly the power generation and transmission industry is also one of the most important industries when it comes to global warming and green economy.

Between 65% to 70% of the global energy requirements are fulfilled through fossil fuels, if the net zero emission goal that was agreed in the Paris conference is to be reached by 2050, then the power generation and transmission sector has to shift to a more sustainable way of generating energy.

The renewable energy generation systems consume up to five times more copper than the conventional energy generation systems. This high copper consumption is due to the decentralized nature of renewable energy systems.

With conventional energy generation and transmission, a central power generation unit can power up a large area, which can be connected through electrical wires. Renewable energy on the other hand is decentralized. For instance every house requires its own solar panels. Even with wind turbines and hydel plants, the copper consumption is high as only a small number of energy consumption units can be connected to them.

Apart from energy production and transmission, copper is extensively used in electric vehicles. The conventional fossil fuel powered vehicles mainly use copper for their electrical components, whereas a typical electric vehicle uses up to four times more copper than a fossil fuel powered vehicle. Apart from electric vehicles, copper is also used in high speed electric rails, drones and generally every tech related good. As the world transitions into a digital age, more and more people will use technology and this therefore is going to further drive up the demand for copper.

Due to these factors, the demand for copper is expected to rise by 50% in the next two decades. This will trigger demand induced increase in price for copper as a commodity because the supply of copper will remain limited due to its rarity. Nick Niziolek the head of global strategies for Calamos investments states that in the last three years the supply of copper has grown only by 1%, it takes years to develop a single copper mine. This is why almost 35% of the copper requirement today is met by recycling and reusing copper. Unlike plastics, copper can be recycled and reused as many times as possible, thus its ability to contribute towards cyclical economy.

The green economy is also expected to receive the political backing, with President Biden bringing USA back into the Paris agreement. This political backing combined with increased demand for copper and strained supply is expected to drive copper prices upwards both in the near and distant future.

Thus with copper taking the driving seat to power up the green economy, the copper stocks appear as a very profitable investment. According to Nick Niziolek, many mining stocks have quadrupled since March 2020, pandemic induced market crash and copper stocks have at least 20% to 30% upside compared to other metals.

Of course, it won t just be copper that will go through an uptick in demand, other complementary commodities and raw materials will also see a rise in demand as countries invest more funds to meet their net zero emissions goals by mid century. Therefore as the world transitions from conventional fossil fuel based systems to sustainable and renewable systems, investors looking for both windfall profits in the short term and sustained profits in the long term, should keep an eye out for copper.