With solar and wind making rapid strides as clean energy sources, the world should produce lots of panels and turbines over the coming decade. Lurking in the background, though, are two troubling questions: Will there be enough copper and aluminum for all that construction? And what’s going to happen to prices?
“Metals will come under increasing demand as we build up more and more electrical infrastructure,” acknowledged Peter Kelly-Detwiler, Principal, NorthBridge Energy Partners, and author of The Energy Switch (northbridgeep.com). “The global economy is becoming more reliant on electrons, and there will be upward pricing pressure on commodities.”
Given the critical role played by these two metals, it is prudent to review the current state of their production and pricing.
Copper
Copper production is barely keeping up with demand. “At the worldwide level we are consuming about 22 million metric tons a year, just about the same amount we are producing,” said Jerome Leroy, VP for the North America Building and Territories Business Unit at Nexans, a cable system design and manufacturing company.
Little wonder, then, that copper has been running recently at prices above their average over the last half century. And this is happening at the same time that China is ramping up its usage of the metal to help feed a return to full economic activity.
The current situation would seem to leave little on the table for any uptick in green energy production. Nexans predicts copper demand will outstrip supply by 2024. All told, the company estimates that global usage will increase to some 35 million metric tons by 2030, while production at current rates should only increase to 27 million. That will leave quite a gap.
Opening new copper mines is neither quick nor cheap, so how will the gap be filled? There is good news here, since some observers feel that self-interest will stimulate greater production as suppliers step up to the plate. “On the supply side we expect strong growth in 2023,” said Eleni Joannides, Principal Analyst, Copper at Wood Mackenzie. “There are new projects starting up, and older ones are still ramping up.”
And there’s another source for copper: recycling. That’s just what Nexans is doing. “There are decades worth of copper cable installed, untouched, unused, that are now beneath our feet,” said Leroy. “We like to call it ‘the urban mine.’”
With all of this back-and-forth between supply and demand, pricing might be expected to bounce around. Yet Looking out over the coming year, experts predict something of a moderation in prices. “Prices are likely to be under pressure amid slower global GDP growth,” said Sid Rajeev, VP and Head of Research at Fundamental Research.
When compared with its historical pricing, today’s copper is no bargain. But greater production and an increase in recycling suggest that the long term prognosis of a bit over $7,300 per metric ton projected by the World Bank is more favorable than it otherwise could be.
Aluminum
Aluminum is another matter. If the chief limitation on copper is the cost of digging it out of the ground, the chief restriction on industrially processed aluminum is the elevated price of electricity.
Rising energy prices will put upward pressure on aluminum, which has been running high over the past year. Prices hit $3,250 per metric ton in the first quarter of 2022 when the Russian invasion of Ukraine sparked panic buying. That was far higher than the $1,794 average price of the year just prior to the pandemic.
Things have since simmered down, to around $2,336 in the last quarter of 2022. That’s because panic buying tapered off and supplies increased as producers stepped up to the plate. For the time being, at least, supply seems to be adequate to the demand. “There is plenty of product in the supply chain,” said Uday Patel, Senior Research Manager for Aluminum at Wood Mackenzie. “Stocks of aluminum sheet and extrusions are very high at the moment, especially for standard non-specialty grades of alloys.”
Market observers expect a bit of turmoil in the months ahead. “I think there will be a lot of price volatility,” said Patel. “One reason is a possible change in the strength of underlying demand. Another factor will be how the Fed deals with interest rates. Perhaps we are the peak right now, and there is also talk about the Fed even reducing rates toward the end of the year.”
A reopening of the China economy (along with stronger growth in the US and a recovery in Europe) is one of many factors expected to buoy aluminum prices in the second and third quarters of 2023. Even so, the World Bank figures aluminum will sell for an average of around $2,400 a metric ton through this year—not far off its current price tag.
The prices for copper and aluminum, to wrap things up, are not expected to drop to pre-pandemic levels any time soon. While some relief is anticipated by the end of this year, starting in 2024 we will have to see how the green revolution affects the entire metal sector.
Metal Prices
Copper and aluminum prices are expected to moderate over the coming months. ($ per metric ton)
| Average for the Quarters Ending: | Copper | Aluminium |
|---|---|---|
| December 2021 | $9,703 | $2,755 |
| March 2022 | $9,985 | $3,250 |
| June 2022 | $9,521 | $2,879 |
| September 2022 | $7,758 | $2,355 |
| December 2022 | $8,025 | $2,336 |
| February 2023 | $8,937 | $2,416 |
| 2023 Annual* | $7,300 | $2,400 |
| 2024 Annual* | $7,361 | $2,434 |
Source: World Bank. * Projections
