Will the copper price reach its peak in 2030?

David Einhorn of Greenlight Capital didn't mince words at the annual “Sohn Investment Conference” in New York. In his eight-minute presentation, he discussed the trend incopper prices. They’re heading in one direction: up.

David starts with presentations on well-known electric car brands such as Tesla, Lucid, Xpeng, and Rivium. He then moves on to the more traditional car brands, including Mercedes, BMW, and Volkswagen.

All of these brands are fully committed to developing electric vehicles. After all, climate goals must be met. And charging all those vehicles simply requires electricity. The most obvious way to generate that electricity is through wind and solar power, as well as hydropower. In addition, cables are needed to transmit the electricity, and batteries are needed to store it.

According to Elon Musk, electricity consumption will actually triple if we switch to fully electric vehicles and heat our homes with electricity.(Source: Tesla Q1 presentation, available at https://ir.tesla.com)

An additional consequence of these developments is that the demand for copper will increase dramatically. An electric vehicle contains more than four times as much copper as traditional vehicles. Furthermore, large quantities of this metal are needed for generating wind and solar energy. Consider, for example, corrosion protection for wind turbines, as well as undersea cables for transporting energy to onshore storage facilities. And the power inverters used to generate solar energy are also packed with copper.

To meet this enormous increase in demand for copper, mine production must be increased. But it takes three years to expand an existing mine. Developing a new mine takes as long as eight years.

In addition, greater capacity is needed to recycle scrap copper. Recycling is important, in part because of its environmental benefits. The problem is that there is currently not enough copper scrap available to meet demand. Analysts at Goldman Sachs are already predicting massive shortages for manufacturers during the 2023–2030 period. The expectedprice of copperin 2025 is therefore $15,000 (€12,500) per metric ton. That represents an increase of no less than 52% compared to the current price—and that’s on top of the more than 30% that copper has already risen in 2021. (Source: Goldman Sachs commodities research. “Copper is the new oil.” April 13, 2021.)

To reduce the demand for copper, replacing it with aluminum seems like a good solution. After all, aluminum is also an excellent conductor, is widely available in the earth as bauxite, and is therefore many times cheaper than copper. Unfortunately, however, that’s not the case. The potential carbon tax is $100 per metric ton. This has a much greater impact on the cost of aluminum than on copper. As a result, aluminum is effectively pricing itself out of the market. This is because, as a result of climate goals, more polluting industries are being taxed more heavily to support sustainable production. In short: for copper, a period of particularly high price spikes appears to be on the horizon.

(Source: Sohn Investment Conference, David Einhorn, May 2021)