The coming copper crunch

Investment Analysis Clubs Macro Economic Trends and Risks
1

Very macro.

Copper—the “metal of electrification”—is essential to all energy transition plans. But the potential supply-demand gap is expected to be very large… …Substitution and recycling will not be enough to meet the demands of electric vehicles (EVs), power infrastructure, and renewable generation…

The chronic gap between worldwide copper supply and demand projected to begin in the middle of this decade will have serious consequences across the global economy…

In the 21st century, copper scarcity may emerge as a key destabilizing threat to international security. Projected annual shortfalls will place unprecedented strain on supply chains. The challenges this poses are reminiscent of the 20th-century scramble for oil but may be accentuated by an even higher geographic concentration for copper resources and the downstream industry to refine it into products [read China].

In the United States, the nexus between a politicized regulatory process and the ubiquity of litigation makes it unlikely that efforts to expand copper output in the United States would yield significant increases in domestic supply within the decade…

Multidimensional challenges make the development of mines a generational endeavor, spanning decades and requiring hundreds of billions of dollars. Projects under development today would likely not be sufficient to offset the projected shortfalls in copper supply, even if their permitting and construction were accelerated.

DB2

7 Likes
2

If this can be produced at scale…meaning heavy industry can ramp this up which will take a new industrial method…then copper will dramatically fall in price.

Aluminum: A Cheap Substitute for Copper.

2 Likes
3

I’m reminded of Hubbards Rule that oil production would peak and begin a decline. Then came fracking. Will something similar be predicted for copper?

At least copper is forever. Once mined it can be recycled ad infinitum.

Blockquote

1 Like
4

Exactly what I was thinking. Aluminum wiring came on the market in the early 70s. A rash of fires came with it, as the aluminum wire was used with hardware designed for copper. The copper hardware was not designed to allow for the greater expansion of aluminum with heat, so the connections would loosen, which made them get hotter, until a fire started.

We old phartz remember when plumbing was done with copper. Then PEX tubing arrived.

Steve

1 Like
5

I was almost killed by a fire in my apartment caused by aluminum wire in the kitchen ceiling in 1983. I was asleep and heard the crackling of the flames. Ran out barefoot in my nightgown. The firefighters threw all my furniture out the 3rd story window. The smoke was so hot that it melted the lampshades next to my bed.

This building is now a co-op. A 1200 sq ft condo (2 bedroom, 2 bath) is selling for $265,000 with a condo fee of $1,065 per month.

I wonder if there have been any other fires. I wonder if the sellers make full disclosure of the wiring.

Wendy

2 Likes
6

Interesting question.

For regular multi-family properties, the bank will require an inspection that specifically checks for aluminum wiring. This came about as a result of the savings and loan crisis, when loans were being made on non-existent buildings, so banks now have to prove they inspected the building. I don’t know how it works for co-ops.

7

Aluminum will help, and the report factors that in.

Page 16: “First, we project future copper demand on a technology-by- technology basis, taking into account the prospects for substituting copper with other metals, e.g., aluminum.”

Page 31: " Aluminum can play the role of substitute in certain cases. In general, aluminum is increasingly privileged for overhead T&D, as it is relatively cheaper and more lightweight than copper. However, aluminum does have increased maintenance requirements and lower technical properties for electrical conduction compared with copper (lower conductivity entails larger cables, and higher corrosion issues). Currently, aluminum production can be more carbon intensive than copper production. These physical characteristics mean that copper remains a material of choice for underground and subsea lines, where technical specification and maintenance play a larger role. Aluminum is also not ideal for transformers."

Page 36: " 0. Substitution of copper use to aluminum has been the primary driver of reduced copper use in certain sectors, for electrical wiring in particular. Increased substitution will continue in T&D but will hit technical and economic limitations (see the discussion below). Alternative materials in automotive will also reduce copper intensity in EVs."

Page 37: "Maintenance issues: aluminum is less ductile (fatigue sets in with breaks possible at stress points when subject to bending), subject to higher oxidation, more sensitive to compression, and has greater thermal expansion and contraction, meaning the connections degrade faster with temperature changes. As a result, aluminum lines require more maintenance than copper lines.
“Emissions intensity: aluminum production is a highly carbon-intensive process. This may further restrict substitution as companies are looking to achieve net-zero emission targets.”

Page B.14: “In harnesses, wire gauge will remain a barrier of substitution to aluminum. Aluminum cables require a larger cross-section for the same specifications, which poses an issue for vehicles.”

B.15: “As mentioned in Chapter 3. Copper requirements in the energy transition in the main report, copper is the material of choice in underground and subsea lines where technical characteristics play a larger role than weight. However, on the other hand, aluminum use is privileged for overhead lines in both transmission and distribution, and in particular for higher-voltage lines. As a result, the study assumes the use of copper for underground and subsea lines (in particular for offshore wind) and use of aluminum for overhead lines.”

DB2

1 Like
8

Aluminum wire is perfectly safe, it’s the connections between it and copper plugs (fuse box, light switches, etc.) that is the problem. Home inspections now check for this, and there are approved “inter connectors” which bridge the gap between aluminum wiring and copper connectors which eliminate the problem of wire loosening.

You can retrofit a home for about $3 per connection.

6 Likes
9

According to McKinsey, electrification is expected to increase annual copper demand from about 25 million MT in 2022 to 36.6 million MT by 2031, with supply then forecast to be just over 30 million MT, creating a 6.5 million MT shortfall at the start of the next decade…

Aluminium demand is set to increase at a similar annual pace, from 9 million MT in 2020 to 12.8 million MT in its Stated Policies Scenario and 16 million MT in its Sustainable Development Scenario by 2040…

IMining magnate Robert Friedland believes copper prices could increase ten-fold if supply can’t keep up with demand, which is entirely possible, and cause volatility in the copper supply chain to spike

DB2

1 Like
10

Since mid-2022, I’ve been accumulating a position in COPX, the copper mining ETF. At first I started buying some individual names in the space, like FCX, but since I know nothing about the industry, I figured the ETF would be a better choice (despite the management fee). Sometimes I buy shares outright and sometimes I sell puts in an attempt to get shares at a slightly lower price. Just last week some of the puts I sold a while back expired worthless. I consider that a kind of reduction in basis (even though tax-wise it is simply considered a short-term capital gain) of my COPX position.

I’ve written about this here on other posts. My thesis is that with increased electrification (cars, heat pumps, etc), demand for copper will keep rising.

5 Likes
11

This recent Reuter article might fit here?

https://www.reuters.com/markets/commodities/pentagon-plans-ai-based-program-estimate-prices-critical-minerals-2024-01-29/

{U.S. Department of Defense plans to develop a program to estimate prices and predict supplies of nickel, cobalt and other critical minerals,
…
part of Washington’s broader efforts to jumpstart U.S. production of critical minerals used in weapons manufacturing and the energy transition.
U.S. output lags market leader China partly because attempts to build new American mines can be heavily influenced by commodity price swings. Jervois Global (JRV.AX), opens new tab, for example, announced last year it would suspend construction of an Idaho cobalt project due in part to low market prices, even while Chinese cobalt miners - financially backed by Beijing - said they would boost production of the battery metal in a bid for greater market share.}

China plays hard ball. In 2010, the US (DoD) made similar claims to support REEs. China undercut prices, and US/Canadian/Western mines collapsed or languished in low price purgatory’s. The plans for processing facilities also were scrapped.

Tesla has been accused of switching to the 48V system, and a “bus” wiring system in it’s newest EV design, specifically to decrease the amount of Cu used per EV.
Well, Musk might have accused Tesla of that. But, it’s been picked up by AI YouTubers.

You just can’t trust Musk, the Chinese, or DoD.

:dragon:
ralph

1 Like
12

Guilty as charged! Not only guilty, he is recruiting co conspitators!

This is why Tesla sent the 48-volt system specs to other manufacturers and Ford CEO Jim Farley just confirmed that he received it.

You can bet that the Tesla Mass Market EV (TMMEV) will be 48 volt as well. Not as likely that the current models will converted to 48 volts.

According to Sandy Munro going from12 to 48 volts lets Tesla reduce the copper by 3/4, reduce weight and make the cars all the more efficient.

The Captain

2 Likes
13

Reducing material use is fundamental to reducing costs, regardless of any supposed “crisis”. I remember those brave early days of aluminum wiring, a cost cutting strategy to eliminate copper wire. For several years now, houses have been built with plastic tubing for plumbing, instead of copper pipe.

Steve

1 Like
14

Does ATT own the largest copper mine in the US?

Mike

15

The copper pipe in a half dozen homes in our neighborhood has failed; homes are being soaked due to pinhole leaks in the copper that suddenly appear 20 years later. Meanwhile we have a mix of copper and pex without problems at all.

16

Goofy,

Sounds like harder water? Or whatever with galvanic action.

Aside folks,

For all the growth in demand in the “United States”…China and Europe may see less industrial demand. Be careful if you are not dealing with global demand.

17

I have read, somewhere along the line, that small stones or bits of sand tend to get caught in the pipe, usually on the upstream side of a joint. As the water flows, the little stone spins in the flow, and digs through the protective oxide coating inside the pipe. As more fresh copper is exposed, it oxidizes, then the stone scrubs it away too. Eventually, the result of the protective oxide coating being abraded away as fast as it forms, is a tiny hole in the pipe.

Steve

1 Like
18

In my fluid mechanics class, we were told fluid flows through a pipe circling it like electrons circle copper wires.

19

No need for stones or sand…

Cavitation corrosion is a specific type of erosion which results from gas bubbles’ implosion on metal surfaces. It is usually connected with abrupt pressure variations associated with a fluid’s hydrodynamic parameters, such as in propellers, stirrer blades and turbine blades.

Cavitation Corrosion.

I had to replace a rudder because the stainless steel rudder post was damaged by cavitation corrosion.

The Captain

2 Likes
20

My BIL used to work in the auto industry. He told me Detroit was looking to move away from 12V systems…two decades ago. It is hard because everything is designed around 12V but it is an obvious direction to go.

1 Like