A recent research note from Goldman Sachs asserts that one particular commodity – found in several Africa countries – could be among the envisaged green economy’s most significant beneficiaries. It appears decarbonisation of global energy production will be nigh impossible without copper.
The achievement of global green energy ambitions will require a move from a system based on oil and gas to one dependent on sustainable, renewable sources of energy such as wind, solar and geothermal. Goldman Sachs contends this is where copper will come into its own.
“As the most cost-effective conductive material, copper sits at the heart of capturing, storing and transporting these new sources of energy. In fact, discussions of peak oil demand overlook the fact that without a surge in the use of copper and other key metals, the substitution of renewables for oil will not happen,” it states.
As a highly efficient conductor of electricity and heat, copper is a critical component of many renewable energy technologies. According to global industry body, the Copper Alliance, it is also one of the few metals that can be fully recycled and reused with no loss to its conductive performance.
In solar-heating applications, copper offers an advantage over alternate materials owing to a combination of high heat conductivity, ease of fabrication and long-term material strength. The alliance adds that it is also widely used in wind energy technologies, particularly generators, high-voltage power cable conductors and transformer coils. In photovoltaic solar cells, copper forms a critical element in components such as the technology’s cabling, earthing, inverters and transformers.
Goldman Sachs states that electric vehicles have more than five times the copper of internal combustion engine vehicles and by the end of the decade, they will account for around 40% of the green copper demand.
Analysis across electric vehicles, wind, solar and battery technology estimates that, by 2030, copper demand emanating from the green transition will grow nearly 600% to 5.4 million tonnes. “We estimate that, by mid-decade, this growth in green demand alone will match, and then quickly surpass, the incremental demand China generated during the 2000s … the 2020s are expected to be the strongest phase of volume growth in global copper demand in history,” according to Goldman Sachs.
Filling the pipeline
While Africa remains home to some of the world’s richest copper belts, the question is whether the anticipated green economy-induced surge in demand can be matched in terms of supply.
Figures provided by business data firm Statista reaffirms the Democratic Republic of the Congo’s (DRC) position as Africa’s top copper producer, delivering around 1.4 million metric tonnes (mt) of copper in 2020. It also boasts among the world’s highest-quality copper reserves, with grades of up to 3%, exceeding global averages of between 0.6% and 0.8%, and mining majors Glencore and Ivanhoe Mines having well-established operations.
Despite long-established copper operations on the continent and abroad, concerns remain that the existing copper industry is unprepared for the impending demand. While an improving global economic outlook and steady vaccination rates drove copper prices to record highs in early 2021, falling inventories, the lack of recent greenfields copper projects, and threats of strikes in Chile and Peru threaten supply.
“The immediate conclusion is that current copper prices ($9,000/t) are too low to prevent a near-term risk of inventory depletion, while our current long-term copper price projection ($8,200/t) is not high enough to incentivise enough greenfield projects to solve the long-term gap … We believe that the most probable path for copper price from here – that both avoids depletion risk and as well as a sharp surplus swing – is to trend into the mid-teens by mid-decade. We now project copper to average $9,675/t in 2021, $11,875/t in 2022, $12,000/t in 2023 before a material step-up to $14,000/t in 2024 and $15,000/t in 2025,” states Goldman Sachs.
Downstream economic opportunities
Should Africa’s copper-producing regions succeed in bringing new greenfield projects speedily online – or upping output at existing operations – the obvious boost to commodity export revenue could be accompanied by welcome downstream gains.
Following a well-trodden boom-town trajectory, businesses related to or nearby mining operations could leverage off a new copper renaissance. Roads will have to be built, supermarkets upgraded, accommodation constructed and healthcare services established, extending the opportunities of an increase in copper demand beyond just the mining companies.