Vijay Kumar Gaba

After almost 5300years, the human civilization may again be entering a copper age. In the Copper Age 1.0 (which mostly occurred between 4500BC to 3300BC) the human transited from stone age to metal age. Copper age was just before we learned to mix tin with copper to make bronze, a stronger metal to be used for hunting tools. A variety of research shows that the invention of first proper round wheel may have happened in this period. The wheel was initially used primarily for pottery and children toys, before it was used in vehicles to transport man and material. Copper age therefore is considered to be an important watershed in evolution of human civilization.

A strong consensus is evolving amongst global expert that acceleration of climate change efforts mean that human may be entering Copper Age 2.0, as the “Red Metal” shall play a critical role in decarbonisation of global economy.

As per a recent research note of Goldman Sachs, “The critical role copper will play in achieving the Paris climate goals cannot be understated. Without serious advancements in carbon capture and storage technology in the coming years, the entire path to net zero emissions will have to come from abatement - electrification and renewable energy. 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.” The report further notes that “At the core of copper’s carbonomics is the need for the world to shift away from a production system based on the chemical energy of hydrocarbons (oil and gas), to one based on a range of sustainable sources – electromagnetic (solar), kinetic (wind) and geothermal. Copper has the necessary physical properties to transform and transmit these sources of energy to their useful final state, such as moving a vehicle or heating a home.”

ING’s research team noted that “Copper seems to be marching towards the peak from its previous cycle thanks to risk-taking and inflation fears. The red metal’s constructive fundamentals, and green narrative on the demand side, seem to be reinforcing the bull run. Given that policymakers seem to be allowing the economy and markets to run hotter, we see further upside for prices near-term.”

ING research further highlighted that “Macro tailwinds, combined with copper's constructive fundamentals and a 'green' narrative in medium- to longer-term demand, could see upside risks dominate for copper…suggesting the red metal could be on a parabolic run, testing previous highs.”

A senior executive at BHP, one of the largest copper producers in the world, was quoted as saying that surging demand for green renewable energy implies that “To keep pace with these mega trends, copper production will have to double over the next 30 years.”

No surprises that copper prices in global markets have risen more than 85% in past one year.

The Goldman Sachs’ note cited above notes that “Crucially, the copper market as it currently stands is not prepared for this demand environment. The market is already tight as pandemic stimulus (particularly in China) have supported a resurgence in demand, set against stagnant supply conditions. Moreover, a decade of poor returns and ESG concerns have curtailed investment in future supply growth, bringing the market the closest it’s ever been to peak supply.”

 

Are we prepared

Insofar as India is concerned, we mine about ~0.2% of global copper concentrate and contribute about ~4% to the total global copper production. The three major players Sterlite Copper, Hindalco Industries and Hindustan Copper dominate the copper industry in India. The copper production in India has been declining for past years, mainly on account of legal issues; whereas the consumption is rising. The reliance on imports therefore is rising.

As per Care Rating, demand for copper from renewable sector is growing as new power generation capacity addition has been led by renewable energy. The demand for copper is expected to remain robust driven by faster recovery in demand from renewable energy projects, transmission towers, government spending on low cost housing and rural infrastructure development projects.

The moot point is how do we prepare for Copper Age 2.0? At present it seems that Copper and Natural Gas imports will replace the Crude Oil imports. We might therefore continue to remain vulnerable on trade account and energy security.