Green revolution price hike as copper market surges
Copper has doubled from the lows seen a year ago and is near a nine-year high, reports Bloomberg. Amid predictions of a new commodity supercycle kicking off, many analysts say the top hasn’t yet been reached for a metal that’s core to the green energy drive.
Demand from renewable power generation, battery storage, electric vehicles, charging stations and related grid infrastructure accounts for about a fifth of copper consumption, according to Citigroup Global Markets. With governments aiming for aggressive net zero emission targets in the coming decades, that means more clean electricity, a shift that’s likely to be copper-intensive given the $28.7trn grid build out required.
Part of that growth will come from the need to connect new renewable power plants with customers. That’s because it’s often cheapest to build such plants wherever the wind or sun resource is strongest, which could be in the middle of the sea or an isolated desert. But that then means a lot more cabling, using expensive copper, than a centralised grid needed in the past.
According to forecasts from BloombergNEF, the global power grid will grow by 48-million kilometers (30-million miles) by 2050. That’s enough to wrap around the circumference of the Earth nearly 1,200 times and equates to a doubling in copper demand to 3.6 million metric tonnes.
“Cities, electrification and copper go together,” said Sanjeet Sanghera, an analyst at BNEF in London. “Copper plays an important role.”
The metal is heavily used in underground cabling because of its conductivity, which is almost twice that of aluminium. That lowers the amount of energy needed to produce electricity.
A 240-kilometer electricity interconnector between Britain and France called IFA2 used 9,000 tonnes of copper, according to the UK’s National Grid. A planned link to Denmark of 760 kilometers will require 26,000 tonnes.
In offshore wind projects, copper is still a relatively small component of costs, but that’s set to increase in the coming years, to about 3% by 2050 from 1% currently, according to BNEF.
Vestas Wind Systems A/S estimates that a 100 MW wind farm using 4.2 MW turbines would use around 89 tonnes of copper in the turbines. At today’s price of around $9,170 per tonne, that would be about $816,000.
If copper’s rally proves long-lasting and pushes up the cost of green investment, some wind farms may use cheaper aluminum where they can. Prices have risen less sharply, up 28% in the past year compared with 62% for copper. Demand for aluminum in power grid infrastructure is estimated to reach 7.6 million metric tonnes by 2050, according to BNEF.
“We see copper remaining integral for interconnectors,” said Srinivas Siripurapu, Chief Innovation Officer at cable manufacturer Prysmian. “But for offshore wind farms, there’s a lot of indications that there will be a push more towards aluminum driven by overall costs.”
It’s not yet clear how much of an immediate impact copper’s price increase will have on the finances of green power operators. Turbine maker Siemens Gamesa Renewable Energy hedges raw materials prices a year ahead, protecting them for now.
The metal’s rally has been driven in large part by investors who see demand soaring as the green revolution gathers pace. But their early optimism may end up pushing up costs for governments as they start putting infrastructure spending packages to work.
Higher copper consumption for decarbonization could drive annual demand growth of as much as 3%, said Max Layton, Managing Director for Commodities Research at Citigroup Global Markets Inc. That will add to periods where supplies fall short, with upside potential for prices.
While elevated prices mean companies have an incentive to ramp up investment in mining, which would help supplies, the downside is the length of time it takes to get projects up and running.
“If this price level holds, we should see announcements of new projects coming in the market,” Raul Jacob, Chief Financial Officer of Southern Copper Corp, said in an interview Monday. But the lags from decision to production will make the price cycle “a little bit longer than in the past.”
Vale invests $150mn to extend life of Manitoba operations
Vale has announced a $150mn CAD investment to extend current mining activities in Thompson, Manitoba by 10 years while aggressive exploration drilling of known orebodies holds the promise of mining well past 2040.
Global energy transition is boosting the market for nickel
The Thompson Mine Expansion is a two-phase project. The announcement represents Phase 1 and includes critical infrastructure such as new ventilation raises and fans, increased backfill capacity and additional power distribution. The changes are forecast to improve current production by 30%.
“This is the largest single investment we have made in our Thompson operations in the past two decades,” said Mark Travers, Executive Vice-President for Base Metals with Vale. “It is significant news for our employees, for the Thompson community and for the Province of Manitoba.
“The global movement to electric vehicles, renewable energies and carbon reduction has shone a welcome spotlight on nickel – positioning the metal we mine as a key contributor to a greener future and boosting world demand. We are proud that Thompson can be part of that future and part of the low carbon solution.”
Vale continues drilling program at Manitoba
Coupled with today’s announcement, Vale is continuing an extensive drilling program to further define known orebodies and search for new mineralization.
“This $150mn investment is just one part of our ambitious Thompson turnaround story. It is an indicator of our confidence in a long future for the Thompson operations,” added Dino Otranto, Chief Operating Officer for Vale’s North Atlantic Base Metals operations.
“Active collaboration between our design team, technical services, USW Local 6166, and our entire Thompson workforce has delivered a safe, efficient and fit-for-purpose plan that will enable us to extract the Thompson nickel resources for many years to come.”
The Thompson orebody was first discovered in 1956 by Vale (then known as Inco) following the adoption of new exploration technology and the largest exploration program to-date in the company’s history. Mining of the Thompson orebody began in 1961.
“We see the lighting of a path forward to a sustainable and prosperous future for Vale Base Metals in Manitoba,” said Gary Annett, General Manager of Vale’s Manitoba Operations.