The Development of New Energy Reshapes the Consumption and Industry Pattern of Copper

The Development of New Energy Reshapes the Consumption and Industry Pattern of Copper

1.The evolution trend of copper consumption structure

Industry insiders might not be very impressed by the growth in demands for copper that is driven by new energy industry. This is due to the fact that copper industry is a big industry, with annual capacity of over 20 million tons. New energy industry has been developing very fast while it did not create a significant growth in copper price, due to the penetrate rate being just 10%. However, the effect in capital market is rather significant. Qualitative changes will emerge after the penetration rate reaches 10%.

In new energy industry, copper is mainly demanded in five aspects:

Photovoltaic: each GW PV requires around 5000 tons of copper, mainly applied in cable, connector, inverter and so on.

NEV: lithium battery requires copper foil. It is the field where copper consumption grows the fastest. Copper foil thickness keeps being reduced so that endurance of electric vehicle can be improved. Currently, the thickness of copper foil is around 4-6 μm. In the first place, the thickness was 8 μm. The weight losing of copper foil is conducive to the improvement of energy density. In current battery system (graphite as negative electrode, lithium iron phosphate and ternary as positive electrode), the improvement of 5%-10% can be achieved. Therefore, marginal demands for copper foil will be weakened albeit the growth in copper foil currently.

Electric motor: one electric motor requires nearly 10kg of copper. However, in the future, the growth in the utilization of copper in electric motor will not be as significant as BYD U8 (four motors each vehicle). Therefore, the utilization of copper in electric motor will be less than that in lithium battery copper foil.

Wiring harness: conventional fuel vehicles have low-voltage wiring harness. Electric vehicles have not only low-voltage wiring harness but also high-voltage wiring harness. The utilization of copper in high-voltage wiring harness is 1/4 to 1/3 of that in low-voltage wiring harness, which is the increase in copper utilization.

Wind power: in particular, offshore wind power, which is always constructed more than ten kilometers away from the coastline, requires cables for connection with land. This is a big contribution to demands for cables and for copper. Electric motor is also a consumer. Wind power is getting larger. Motor is getting larger, and motor blade is getting larger. This will lead to changes in materials and utilization volume, including not only copper but also carbon fibre.

The demands in copper are mainly seen in the aforesaid five aspects. There is also some increase in charging stations but the increase is not significant, only around 20000 tons. The rest 90% still lies in conventional industry, including construction business, electric power and industry.

From the perspective of total consumption and structure globally, total consumption is steadily growing, mainly due to the stable contribution made by China, including conventional electric power and infrastructure. China is not a country that deems copper as a leading material in construction industry, which is different from western developed country. In China, half of copper utilization lies in electric power. In the future, after copper utilization surpasses 10% in new energy industry, demands for copper will increase obviously, developing into a leading growth pole. Total amount is so big that we cannot see obvious change in copper utilization. Construction industry and infrastructure industry are two primary sectors where copper is greatly utilized.

The growth in PV is significant, i.e. growing from 910000 tons to nearly 2000000 tons in just two years. The growth in wind power is not significant due to bidding process. According to planning, the ratio of wind power to PV is 3:7 or 4:6. In the future, copper utilization increases mainly in PV industry. As for electric vehicles, copper utilization increases significantly due to the fact that copper utilization surpassed 10% in our country long ago. In the future, copper utilization in electric vehicle industry in USA will also surpass 10%, thus helping to improve copper utilization.

The increase in copper utilization will result in the industrial proportion of 15%. The figure was 10% last year. This means, in just one year, copper utilization grew to 15% of total copper demands.

2.Development status and future trends of copper-related new energy industries

Firstly, development status

PV: demands for PV are growing swiftly, planning to achieve the annual installation of 1000GW. Different countries are different in demands, and currently, China is still a leading country in demands.

Wind power: the increase mainly lies in domestic offshore wind power in the future. In overseas countries, onshore wind power is playing the leading role. China is also taking the same development path. Onshore wind power is the first step and then offshore wind power. Offshore wind power is rather high in cost, and the aforesaid development path may help to create high competitiveness in the era of affordable grid-entering if without subsidy.

NEV: the absolute magnitude of NEV in China is big. The growth will fall by around 30% this year, because the growth falls when the magnitude reaches peak. After USA released, many global electric industries (including Chinese companies) have been transferring capacity to or have been launching capacity in USA or countries entering inwith USA (such as Mexico). Although the growth in NEV sales in USA was only around 60% from January to September, as supporting industries for NEV industry are getting developed in USA, sales volume will climb up in a certain period in the future.

Charging station: the development of NEV will bring about the growth in charging station.

Secondly, future trend

PV: will mainly rely on overseas market. China has been making contributions in previous and recent period, but in the future, major contributions will mainly rely on overseas market.

Wind power: will mainly rely on offshore wind power. In the future, competition in onshore wind power is getting cruel. All local governments are actively inviting tenders for offshore wind power projects, especially, in the past one month, tender inviting activities were intensively conducted in our country. The turning point is approaching in the short term.

NEV: will present nearly 100% growth

Copper consumption in new energy industry is the major contribution to total copper consumption. It is expected that as of 2030, a growth of 7000000 tons to 8000000 tons in copper consumption will emerge in new energy industry. This is the main growth point. In a way, it will offset the reduction in copper consumption in conventional industries (such as real estate and infrastructure).

It is estimated that the figure is 7700000 tons as of 2030, occupying 27% globally (approaching 30%), quite a huge leap compared to 3% in 2015. In other words, new energy industry is going to be a very important and even the core sector for copper demands. By structure, PV and NEV are the main consuming parts. By trend, after 2025, the proportion of copper consumption by PV will fall a bit in new energy industry.

3. The influence brought to copper industry by the development of new energy industry

The development of new energy industry will not only influence the demands for copper but also influence all parts of copper industry. For example, in terms of refined copper, the supply of primary copper and secondary copper will continuously increase while the increase will mainly lie in secondary copper in the future.

On smelting side, it has been in capacity expansion period in the past three years and coming two years, especially newly increase capacity this year achieving 2000000 tons. It is estimated that the capacity will be cleared to some extent in the future. Although output will increase, capacity on smelting side will start to be cleared from 2026.

In terms of conventional industry, copper lifecycle in NEV industry will significantly shorten. The lifecycle of copper utilized in construction industry and electric power industry is more than 30 years, which means the collecting cycle is very long. However, lifecycle in new energy industry needs to be relatively short. In particular, due to the regulations on environment protection, great importance is attached to NEV battery recycling, and great efforts are made in battery recycling. Importance and efforts are also attached to the recycling of copper foil and other incidental copper consumption.

Driven by the fact that lifecycle of copper consumption in future new energy industry is shortening, it is estimated that great growth will emerge in secondary copper industry and copper recycling industry. It is estimated that the growth in recycled copper will reach 15%-20% as of 2030, occupying 17.5% of copper supply.

Copper incorporates copper wire, copper rod and copper foil. Copper foil is the segment that most benefits from the development of new energy. It is estimated that as of 2030, lithium battery copper foil will account for 63% of total copper foil, and will account for 4.7% of total demands for copper. Currently, the base is relatively big, gradually leading to a fall in growth. Thickness reduction is the theme in the development of copper foil industry, from 8μm to current 6μm, and to the future Composite Colloidal Fluid.

4. Long-term influence generated by new energy development to copper consumption

It is estimated that a slight capacity surplus will emerge in refined copper market in 2024-2025. After that, the demands will recover. Recently, China and USA announced the reaching of Climate Joint Statement, i.e. by 2030, in California of USA, the installation of renewable energy should be 4 times the installation currently, which will result in an optimistic prospect in terms of demands.

However, the recycling of secondary copper will grow fast due to the structure of copper consumption (including PV and NEV). As for large quantities of bulk commodities (the commodities with the quantity of over 20 million tons), we might not see the supply and demand gap like lithium carbonate. From the perspective of shortage, in recent years, new capacities have been going into operation on smelting side, leading to tension of concentrate. From the perspective of industrial investment, the mines related to promising segments are attracting investments in the long run.

The fast development of new energy industry is significantly influencing copper market. Demands for copper is likely to reach 19% by 2025, and the figure hopefully will reach over 27% by 2030. As for the other base metals, as NEV and PV are utilizing aluminum, the proportion of aluminum will rise by around 15%; the proportion of tin will rise to around 10%, due to the fact that the quantity of chips utilized by a NEV are several times the quantity utilized by a conventional vehicle, driven by electrification.

Demands for nickel are mainly required by stainless steel industry (70-80% demands). As time goes by, as ternary lithium battery develops, power battery becomes a growing consuming sector for nickel. It is estimated that by 2025, NEV industry will occupy around 33% of total nickel consumption.

New energy industry reshapes not only the consumption pattern of copper market but also the pattern of bulk commodities and raw materials. Compared to lithium carbonate, copper is a maturer and more universal industry. In the long run, lithium carbonate will also become a bulk commodity. However, in the coming 7-10 years, as copper industry already boasts stable industrial structure, product structure and consumption structure, big investment opportunities hardly will emerge, while investment opportunities still exist in segments. From the perspective of upstream, primary mines are promising, for they create more attractive profit margin than secondary copper, albeit secondary copper still making progress.

In terms of product side and material side, lithium battery copper foil is promising. In the future, total consumption will rise greatly. More than that, the thickness will be further reduced, to the direction of composite technology, which will also bring about an increase in profit margin. In addition, compared to conventional motor, flat wire motor has threshold and barrier. Relying on this, it creates extra profits compared to ordinary manufacturing industry.

5. Summary

To sum up, we have the following five conclusions:

Firstly, from the perspective of supply and demand relation. Compound growth from 2020 to 2030 will achieve around 20%, becoming a major driving force for copper consumption growth. Cumulative demands will achieve 26 million tons, helping to offset some holding-back effect on copper consumption generated by conventional industry to some extent.

Secondly, from the perspective of demand structure and product structure. It is estimate that by 2025 and by 2030, new energy industry will occupy 19% and 27% in terms of copper consumption. Among the consumption, by 2030, PV will occupy 46% of total consumption in new energy industry, and NEV will occupy 36%, amounting to 82%. The two sectors are the major driving force for copper consumption growth. From the perspective of concrete copper products, there will be no big changes in consumption patterns except for copper foil. Copper foil sector will breed a batch of new material processing industries.

Thirdly, from the perspective of industrial structure. The growth in copper consumption in NEV shortens copper collecting cycles to 5-8 years from the original 30 years. The proportion of recycled copper will rise swiftly to 17.6% by 2030, which will somewhat constrain the capacity primary copper. Therefore, hopefully, primary copper capacity will be cleared in the coming few years.

Fourthly, from the perspective of technologies. Composite Colloidal Fluid will be a factor that constrains total volume of lithium battery copper foil. However, it will help to improve profit to a certain degree.

Fifthly, primary copper still creates the highest profit margin and is worth the biggest investment in the whole industry chain albeit demands for primary copper getting weak in a way.