Tesla Can’t Make Electric Cars Without Copper

Editor’s note: If Santa is passing out commodities this year, skip the coal and ask for copper instead. It’s set to hit $10,000 next year, some say. Today, resource investing expert Matt Badiali gives you a good reason why we could see a 46% increase in the metal from here.

Experts at copper giant Codelco, the Chilean state-owned mining company, believe the red metal could hit $10,000 per metric ton next year. That’s $4.55 per pound.

It would be a 46% increase from its current price. And that’s after copper prices rose 50% in the past year.

According to the giant mining company, supply and demand are out of balance. There won’t be enough copper to meet demand. And that means rising prices.

A Red Metals Bull Market

As you can see in the chart below, rising prices have been the theme in copper since late 2016:

If the electric car market explodes, as most analysts believe, copper demand will as well. Tesla can’t make electric cars without copper …

In a recent interview for the annual LME Week in London, Codelco Chairman Oscar Landerretche said: “Our projections show a sustained increase in deficits, and we don’t have any reason — that we know of — for closing them in the future.”

This was a huge flip for Codelco. Landerretche attributes the change in outlook to “the acceleration of the electrical economy.” The company didn’t expect the speed of the change.

Supply of metals from mines is slow to react, both going up and going down. On the other hand, demand can move quickly. When that happens, it can have a huge impact on prices.

Part of that rapidly rising copper demand comes from electric vehicles.

According to analysts at Morgan Stanley, the average electric vehicle has 165 pounds of copper in it. Over 88 pounds of copper are in the batteries alone. The rest is in the vehicle itself. A typical electric car battery is 20% copper, by weight.

If this market explodes, as most analysts believe, copper demand will as well. You can’t make electric cars without copper …

The Copper Sector Is Red-Hot

Today, electrical and electronic products consume 38.7% of the copper supply. Building construction is a close second at 30%.

The copper price rises and falls with the world’s largest economies. When we have robust economic growth, the copper price climbs as supplies tighten. However, when growth slows, supply outpaces demand, and the price falls.

Today, we are in a period where demand is rising. Giant investment bank Goldman Sachs increased its 12-month price target to $3.20 per pound. That’s a serious increase for a metal that spent most of 2017 below $2.75 per pound.

The copper sector is hot, but if the price rises, it’s going to positively boom. Make sure you can profit.

Good investing,

Matt Badiali
Editor, Real Wealth Strategist

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Comments 5

  1. Steven Davis MRICS November 24, 2017

    so, it’s about time to re-open the mine in Butte, Montana, isn’t it? That was the ‘Anaconda’ python can constrict the supply shortage and price increases.

    Reply

  2. hooscfp November 24, 2017

    Which copper investments do you recommend?

    Reply

  3. Sajal Banerjee November 24, 2017

    What is the symbol of Codelco copper stock? Thanks.

    Reply

  4. rschubring November 24, 2017

    Morgan Stanley’s analysts are off-base a tad, on electric car batteries, because anodized aluminum can do the job equally well, and graphite fiber (the synthetic stuff made from pitch, not the lumpy stuff they dig out of the ground in Korea) is no slouch, either. Where copper gets essential is where heat removal, due to electrical resistance, is significant, and that’s in the motor and generator windings. Hybrid cars have a big generator that must be made of copper windings, and one, two, or four drive motors, that must have copper windings. All-electric autos skip the big generator. In batteries, one can take advantage of the lighter weight of carbon or aluminum, and rely on the loss of Skin Effect, owing to the use of DC current where there is no Skin Effect, and work with materials less conductive than copper. Wrought iron would serve in a pinch, too…it’s nonmagnetic. Where auto makers go squirrely is that they like Pulse Width Modulated voltage regulators, to provide speed control for the drive motors, and when they do a lousy job of compensating for the frequency disruption those regulators introduce, they end up with a Skin Effect load projected back into the batteries. Terminating the battery pack in a capacitor bank with an induction coil in parallel, tuned to the operating frequency of those Pulse Width Modulated voltage regulators, eliminates the Skin Effect and enables cheaper materials to be used in the batteries. Of course, the neatest way to do this is to replace the pulse width modulation with DC-to-AC inversion, and then use a variable-voltage transformer to provide the voltage control. That gives a neat solution with a lot less copper…especially if one runs the inverter at a higher frequency than power lines use. 440 Hertz is kinda popular in factories for hand tools…the motors need less copper, are lighter, and if workers pilfer the tools and take them home, they plug them into a 60 Hertz outlet at home and the tool overheats and starts smoking, but doesn’t rotate. So nobody steals tools from the factory a second time, because one can’t drill holes or grind things with them at home if all they do is smoke.

    Still, ignoring the car market, China’s “One Belt, One Road” economic strategy promises to bring the rural west into a 20th Century lifestyle, with electrical appliances in every home. That promises to put a big demand for copper in the works, as half of China’s population catches up to the other half’s standard of living. Goldcorp has a nice copper deposit they bought this year, when they acquired Exeter Resources, in Chile’s Maricunga mining district…and there’s some nice copper oxide-gold ore right near the surface, ready to mine. Now if Goldcorp can only get water…

    Reply

  5. CRAIG BUTTLE November 28, 2017

    What about Carbon fibre, fibre optics, glass and plastics, all great investments.

    Reply