When America sneezes, the world catches a cold. That old bellwether for the global economy may have lost some of its power today, but another has taken its place. Copper, the robust red metal used widely in construction and industry, is a commodity watched almost as closely as oil for its ability to foresee shifts in the global economy. At a moment where it is more important than ever before, scarcity worries mean that investors should look beyond traditional markets, including in untapped locations such as Zambia, in order to satisfy global demand.
As demand begins to outstrip supply, copper’s price is booming, prompting signs of a shortfall that could cripple countries’ ambitions to ‘green’ their industries in the coming decades. ‘Dr Copper’, as market watchers refer to the commodity, is the core of many environmentally friendly products, from buildings to solar panels.
Last month, the metal’s price reached a record high on the London Metals Exchange, as supply disruption in a Covid-19 economy shrunk, including slower ore production in existing mines. The largest copper mining destinations in the world such as Chile, have reached peak production, and the Chilean government struggling with unsustainable environmental practices.
The influential International Energy Agency is sounding the alarm bell on copper supplies too, with a recent report stating: “today’s supply and investment plans for many critical minerals fall well short of what is needed to support an accelerated deployment of solar panels, wind turbines and electric vehicles”. In other words, we need more copper mines. And fast.
Falling supply is a serious issue for industries looking to boost their sustainability credentials. Copper is a flexible and cheap conductor, making it central to the production of a large amount of ‘green’ products and infrastructure.
Copper use helps reduce CO2 emissions and lower the amount of energy needed to produce electricity. It is an essential ingredient in innovative technologies such as smart energy tech, aquaculture and electric cars (they need four times as much copper as traditional petrol vehicles). Not to mention solar panels and wind turbines which themselves are helping to create sustainable world economies. Goldman Sachs predicts that by 2030, copper demand will grow nearly 600%.
The impact of a global shortage in copper supply is not one that can be averted quickly. It takes many years to properly increase production at an existing copper mine, and longer still to dig a new one. Since 1990, 224 copper deposits have been discovered across the world. Just 16 of these have been in the past ten years. Shrinking new discovery comes as market watchers such as S&P Global are estimating that existing mines have reached peak production.
The answer, then, lies in new markets, with previously untapped resources. The country of my childhood, Zambia, is now also thought to have far higher deposits of copper than previously estimated, according to the US Geological Society. In a country with strong institutions, market-leading environmental regulations and a comparatively good Ease of Doing Business Index compared to its neighbours, the stage is set for the mining sector to thrive for decades to come.
It is why Chillerton has invested in four new world class mining deposits this year, providing access to millions of tons of the precious red metal. This reflects a wider trend, with almost all of Zambia’s larger mining companies recording an increase in copper production in 2020, with total copper production jumping 9.7% year on year to 882,061 mt. As market clamour begins to herald the arrival of a new commodities ‘super cycle’, it is Zambia who will sit at the forefront.
Without reliable access to copper supplies, the world will not be able to put in place the pieces of the decarbonisation puzzle that it needs to succeed. Electric cars will never hit the road, solar panels will never see the sun, and new buildings will require more energy to keep their residents warm. Only though bravely seeking out opportunities in new markets will investors be able to ensure ongoing access to the red metal which underpins the world’s chances of success in creating a net zero future. Zambia is an excellent place to start.
By Karan Rathi, Board Director of Chillerton Group