According to a World Bank report, energy transformation requires 3 billion tons of metals and minerals. The report also noted that by 2050, demand for materials such as copper, lithium, cobalt and graphite would increase by 500 per cent. Some of these metals, copper, are already close to the supply less than demand.
Copper prices are close to a record high since 2011, with at least one analyst predicting that demand will exceed supply by the end of this year. according to Mining.com Natalie Scott gray of Stokes said last month demand will grow by 5 per cent this year, while supply will only grow by a small 2.3 per cent, the report said last month. The longer-term problem is that it will take a while to achieve more supply.
“We found that using electric vehicles, wind farms and solar energy will require up to five times as much copper,” said Jeremy weir, chief executive of trafigur, in cerawek, published this year, Reuters reported. But more copper is produced. ”
Will added that copper development takes five to 10 years, which means that copper supply will be more intense in the foreseeable future. This is similar to other minerals that are critical to energy transformation. At present, cobalt prices are also rising as market expectations of higher demand will lead to tight supply. Elon Musk of Tesla recently signed an agreement to serve as technical advisor to Goro mine in New Caledonia to ensure long-term supply of nickel, another key battery metal.
The 500 percent increase in demand for anything is good news for investors, so as prices for base metals such as copper and nickel rise, the bull market for metal and mineral investors is coming. But with the increase of copper and nickel prices, the price of the products will also rise, especially electric vehicles, which is the key to energy transformation. As automakers and battery makers keep reducing production costs, electric vehicles are touted as cheaper and cheaper. But if the price of any battery component increases substantially due to a shortage of metal materials, these production cost cuts will be offset.
The root cause of the price problem of basic metals is that for many years, the industry has been plagued by insufficient investment due to the weakness of the price of basic metals, which is the result of abundant supply, because demand drivers are always the same: manufacturing, construction, telecommunications, power facilities (copper), stainless steel production (nickel) and construction.
Currently, only 4% of global nickel demand comes from the electric vehicle industry, and 70% is from the stainless steel industry. But it is predicted that the popularity of electric vehicles will lead to an increase in demand share of electric vehicles from 4 to 10 per cent next year and further to 20 per cent by 2030. It is a very rapid growth, which inevitably leads to price spikes, as production has not kept up.
The prospect of copper is relatively optimistic. A report by the BFI capital group outlining the S & P global market intelligence cited in the energy transformation showed that 224 large copper mines have been found worldwide since 1990. However, only 16 of these findings have been found in the past 10 years, and only one of them was found after 2015. This means that the depression in the exploration environment has led to a decline in copper supply in the future, which means that the copper shortage is about to occur.
When it comes to a downturn in exploration and investment, the oil market is also facing a shortage of supply, although oil, a commodity that has fallen from a bright future. In the past 10 years, two oil price falls have led to the shrinking of exploration activities, and the second crisis has accompanied a large-scale collapse of demand, further reducing the industry’s interest in new exploration activities. The result is that, according to France, in just five years, the world will need 10million barrels more oil per day than it is today.
Total is not the only company to issue a supply shortage warning. The American Petroleum Institute recently said that the combination of insufficient investment and natural exhaustion will lead to a shortage of oil as soon as next year. Of course, API is an industry organization, so people expect it to give such warnings, but in the long run, the reasons for the shortage are easy to see. During the crisis of 2014 and 2020, all oil industries have cut back investment in new exploration. Last year, many companies even had to reduce existing production as demand collapsed.
Today, oil prospects are bleaker than ever due to energy transformation, and many companies, especially the big oil giants, are planning to continue to reduce production. At the same time, demand is not falling as fast as energy transition advocates hope, especially in developing countries that rely heavily on fossil fuels. India, one of the world’s largest oil demand drivers, has warned that OPEC’s decision to maintain the production cap will hurt its economic recovery.
So, in the next decade or so, what we expect is likely to be more expensive electric vehicles, more expensive solar and wind farms, because copper is important in these renewable energy systems, ironically, more expensive oil.