Foreign media on August 2 news, it is reported that the current bullish forecast for the copper market is not difficult to find.
Thanks to strong copper prices and strong demand over the past few years, copper mining companies have been cashing in.
The only thing missing is more copper.
Major discoveries are few and far between, few new mines are being built, and production from existing mines is declining.
Fears of supply shortages are gripping governments and boardrooms, and with the average lead time for new mines well over 10 years, copper users are looking for short-term solutions to avoid a supply crunch.
A new in-depth report from BMO Capital Markets examines the extent to which conservation and substitution are damaging copper demand, an issue that "has become a common theme of discussion in the industry."
The numbers in the book Coping Strategies for Copper Constraint, by Goldman Sachs analysts Rory Townsend and Colin Hamilton, are truly jaw-dropping.
In the absence of any further substitution or savings, demand for copper semi-finished products could reach 40.4 million tonnes per year by 2030, BMO said. Its forecast for maximum demand is higher than last year's 31.8 million tonnes, representing a compound growth rate of 3 per cent in 2022-2030.
But the authors say there is scope to reduce or completely replace the use of copper in power transmission and distribution networks, renewable generation capacity, communications cables, industrial air conditioning equipment and the transportation sector, and that original equipment manufacturers have plans in place.
Fear substitution
Through this process, the investment bank's base case assumes that cumulative semi-finished copper demand will fall by nearly 10 million tonnes by 2030.
"Our base case remains that substitution and savings occur in a steady, gradual manner, which is good for current commodity prices."
"However, there is a growing risk that consumers will start designing around potential limiting factors before they emerge, especially in the automotive industry."
"This' fear substitution 'will challenge the long-term demand theme and has the potential to seriously hurt industry output and prices."
If the base case expects the market to function well, BMO expects an additional 11.6 million tonnes of demand to be at risk under this aggressive substitution "fear" scenario.
By the end of the decade, the cumulative risk is 21.5 million tonnes, or in other words, annual demand in 2030 is 35.2 million tonnes (vs. 40.4 million tonnes), with a compound annual growth rate of 1.2% (vs. 3%).
Al was your friend
BMO says copper is now four times more expensive than aluminium, up from nearly 1:1 in 2000, and cheap enough for copper to displace it on a sustained basis. Although aluminum is only about 60% as conductive as copper, in many cases, aluminum's lighter weight can make alternatives more attractive than just cost considerations.
BMO said areas where savings may be seen include greater use of high-voltage direct current (HVDC) power lines, reduced metal strength in transmission networks, a continued shift to fiber-optic communications networks, and renewable energy generation projects, which are often small enough to connect directly to the distribution grid and use low-voltage cables, compared to high-voltage cables. It also requires less metal per kilometer.
BMO forecasts that the total length of global transmission and distribution networks will reach 110 million kilometers (680,000 miles) by 2030.
The investment bank believes that air conditioning systems are the most affected area, especially in industrial applications where alternatives are technically feasible. The authors note that air conditioning giant Daikin aims to halve its global copper consumption by the end of next year.
Until the last moment
Electric cars use a lot more copper than cars powered by gasoline and diesel, but car and battery manufacturers are working to reduce that percentage.
"Thinner copper foils are being used in battery cells, the switch to 800V platforms promotes the use of thinner cables, and the increasing penetration of low-spec vehicles as we move towards mass adoption, coupled with the right size of battery packs and electric motors, will all lead to a reduction in copper strength," BMO said.
BMO said the world's average copper use per light battery electric vehicle is 69kg, excluding China, where the average copper use for pure electric vehicles is closer to 50kg, but "any forecast that still includes the fabled 80kg will need to be adjusted."
In May, Tesla said that starting with the early production Cybertruck, the Optimus robot, and all future electric vehicles, will use a 48V low-voltage system, while most cars use a 12V system.
In a traditional 12V system, the wiring and components must be larger and heavier to handle high electrical loads. With the 48V system, Tesla hopes to reduce battery weight and save costs.
"Preliminary estimates, that means we only need about a quarter of the copper we need for a 12V battery in the car, so that's a big deal because people often worry about whether there's enough copper," Musk said.
"Yes, there is."
Remain optimistic
BMO is at pains to say: "It still believes in the long-term view of copper and believes we remain bullish on copper in the medium to long term."
Even under the minimum demand at maximum substitution scenario, the copper market will achieve positive growth, including in non-energy transition-related sectors such as construction, after taking into account the all-important Chinese construction sector:
"Naturally, the future of property demand in China is often the first thing that comes to mind when it comes to areas at risk of a potential structural downturn.
"Having said that, the focus of stimulus measures and developers is likely to remain on home completions and shantytown renovations rather than new starts, which are typically more in need of copper and aluminium."
