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Electric Cars No Game Changer for Copper Demand in Short Term

Reuters – Copper bulls predicting a rapidly changing demand landscape due to the electric vehicle (EV) revolution and supply shortages are likely to be disappointed, as the amount of extra metal needed is expected to be small, at least over the next few years.

For some years now, copper producers have pushed the idea of surging copper demand as EV sales gain momentum due to governments and consumers around the world looking to cut carbon emissions from fossil-fuel cars.

The theme is likely to be a focus again at CESCO, consultancy CRU’s annual copper conference in Santiago this week, a gathering of senior executives from producing and consuming industries.

“While EVs are a great long-term story, demand is only expected to be around 1.5 percent of world refined copper consumption this year, and even five years out is unlikely to be anything more than 3 percent,” CRU analyst Robert Edwards said.

Copper, valued for conducting electricity, is used in the charging stations needed for electric vehicles and in the rechargeable lithium-ion batteries that power them.

Research commissioned by the International Copper Association (ICA), an industry-funded body, shows more than 40 million charging ports will be needed over the next decade, consuming an extra 100,000 tonnes of copper a year by 2027.

EVs require between 40 and 83 kg of copper, according to research commissioned by the ICA, while an internal combustion engine needs an average of 23 kg.

But the advent of electric vehicles is unlikely to reshape the copper market as it has done for cobalt, another battery ingredient. “The base is too low for it to matter for quite some time,” Macquarie analyst Vivienne Lloyd said, adding that the story was for the longer term and its impact on prices in the short term would be minimal.

“It’s too far away for most people to care.”

Copper prices at around $6,750 a tonne have fallen 8 percent since hitting a four-year high of $7,312.5 in December, as worries about protectionism and weak demand in top consumer China have taken hold. Consultants at Wood Mackenzie expect EVs to add around 600,000 tonnes to copper demand in 2025 and about 1.6 million tonnes in 2035, still a small proportion of copper usage estimated at 24 million tonnes this year.

More copper could be needed to modify and upgrade electric grids, but as yet there are no estimates.

However, there are risks to any forecasts, including technological innovation, changes to government policies that support EVs or supply bottlenecks such as those expected in cobalt.

“2025 is a long way from here. A lot of parameters we don’t know,” Goldman Sachs analyst Hui Shan said. “The (limit on) supply is more certain. By 2021 we might be getting into economic downturn, in which case deficits may not appear.”

The copper market is expected to slip into a deficit this year that could rise to more than 900,000 tonnes in 2021 and 2022, according to BMO Capital Markets, as supply growth slows due to deteriorating ore grades in countries such as Chile and lack of investment in new projects.

However, global copper stocks of 4.1 million tonnes, according to BMO, offer a buffer, as could scrap and substitution with aluminium. In the very long term, a dearth of new projects could mean larger deficits, despite prices at levels that analysts say should incentivise new investment.

Source: Reuters reporting by Peter Hobson Edited by Pratima Desai and Dale Hudson.

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