Copper price to hit USD 10,000 on the electric vehicle revolution
IG Group reported that December 5th was copper’s worst day in almost three years, with many analysts blaming a rise in inventories for the fall. More important, though, might be hedge funds pulling back on risky positions ahead of Christmas and leading copper to pull back just below USD 6500 a tonne.
While rising inventories probably played a part, large western holders and Chinese reserves have been manipulating for years, adding copper to drive prices down. At this point, that shouldn’t come as a shock to the markets.
Though the price of copper has fallen back for now, the wider introduction of electronic cars should see a large upside on the horizon.
Copper is needed for the production and running of electric vehicles, and soon miners may struggle under the weight of increased market demand. New copper mines are increasingly difficult to find, and though expansion of existing mines is also an option, many have already been expanded beyond their means.
Some analysts have predicted that copper prices could rise to as much as USD 10,000 per tonne as demand increases. It’s possible that the market price could reach USD 7000 per tonne before January, and USD 9000 toward the end of 2018 – making USD 10,000 a reasonable estimate within five or ten years.
Electric vehicle revolution
Copper isn’t the only metal that could benefit from the trend toward electric vehicles, lithium, which is needed to make batteries, could also see a surge. We could even see a deficit as miners struggle to keep up with the growing demand.
While many fund managers may worry that battery chemistry could evolve and make lithium redundant, it’s unlikely that to be replaced anytime soon at least not for ten to 20 years, as scientific development has slowed significantly.
China looks likely to be the main driver of market price movement for copper and lithium for the next two years at least. As a communist state, the government is able to push policy for electric cars out nationwide. Over 22 million electric bicycles have already been introduced, with electric taxis and cars expected in numbers larger than for any other country.
China’s focus on electric vehicles is mostly driven by the increasing levels of pollution seen in major cities across the country. And it doesn’t look like copper and lithium will be the only markets to feel the effects from this initiative, with other policies – such as pulling the plug on ferroalloy-producing furnaces that use excessive amounts of electricity until further notice likely to reduce China’s ore consumption.
With large factories not processing ore for the foreseeable future, markets may see a surplus that could drive down prices. Although good for buyers, it will negatively impact the mining industry.
Source : IG.com