I remember the original ‘Mr. Copper’, Yasuo Hamanaka, being a pretty decent karaoke singer. That’s a story for another day but there’s a risk-aware part of me saying that copper, as in the metal, needs to be sung from those Roppongi rooftops right now. Hamanaka’s claim to trading fame was cornering 5% of the copper market when discovered by US authorities 30 years ago, culminating in jail time for Mr Copper and a top 10 all-time trading loss of almost $3 billion for the mighty Sumitomo Corporation. The scandal dominated global financial headlines for weeks back then but I feel another copper story with big numbers is building. Let’s start with a selection of recent headlines…
Massive copper shortage on the horizon – The Week
Copper demand to boom as new technology drives power consumption Trafigura says – Reuters
AI to add 1 million tons to copper demand by 2030 – Data Centre Dynamics
Copper is the “new oil”, and prices could soar 50% – Fortune
Copper shortage threatens EV transition – DPA Magazine
I think we get the picture. Copper is not just a battery/electric vehicle (EV) story – EVs actually use four times more copper than non-electric autos. Copper is also now a data centre and AI story. However, there’s an even bigger picture. McKinsey estimate the global shift away from fossil fuels to a decarbonised economy will require annual physical infrastructure spend of $9 trillion. Yep, that’s every year until 2050. Or, the combined market value of Microsoft, Apple and Nvidia in capital expenditure……. every single year for the next 25 years. The critical detail in this decarbonisation move is electrification. Energy supply is one aspect; nuclear, natural or renewable. The transmission and storage of that converted power via electricity is the copper-critical bit. Let’s consider a few more numbers.
*CRU Group estimate global copper demand to surge by 9.5 million tons in the next decade.
*S&P Global go bigger – they see global copper demand doubling from current 25 million tons per year to 50 million tons by 2035.
*For historical context, 700 million tons of copper has been produced over the course of human history. Net-Zero targets for 2050 demands that humanity produces 2x more than it has ever produced, or 1.4 billion tons (Source: S&P Global).
*However, the mining industry would like to have a word. Due to chronic underinvestment, planning delays, investment capital scarcity, genuine sustainability concerns, higher interest rates and shiny AI tech excitement the global mining sector is currently projected to increase production by just….. 20%.
*Oh, and the world hasn’t made a major new copper discovery since 2014. This lack of copper discoveries also means existing mines going deeper, incurring greater costs while the grade (metal per ton of rock) falls alarmingly.
We have a problem. Arguably, it starts with the investment maths. Consultants, PWC, reckon AI could add $15.7 trillion to the economy by 2030. But…. these technologies and their Big Tech owners require massive amounts of electricity. Both Google and Microsoft consume more electricity than small European countries. So, how about the USA, home of the original Silicon Valley? Right now, US data centre power usage accounts for 22GW, or 4.5% of the nation’s power consumption. However, according to SemiAnalysis research, that figure is projected to reach 100GW, or nearly 20% of nationwide consumption by 2030 due to AI buildout.
To be absolutely clear, the expansion of grid infrastructure across generation, transmission and distribution is critically dependent on copper and its performance properties. Yet, there appears to be an enormous squeeze on grid capacity coming. That’s not just cheap commentariat opinion. As always, money really talks. So, can you name the electric power company that has outperformed the rocketing AI poster-child Nvidia this year? Well, that would be Vistra Corp which has clocked up a share price gain of 157% compared to Nvidia’s ‘slow-coach’ 121%.
So, if electric power is spotted as a potential winner by canny investors ahead of a supply squeeze, where does that leave the mining sector and copper? There have been a few clues. For example, BHP Billiton in recent months unsuccessfully tried to buy Anglo-American (and its copper mines) in a massive $50 billion deal. Interestingly, the ultimate fossil fuel kingdom, Saudi Arabia, can also see the electric future. The Saudi mining company, Manara Minerals, is in talks with Pakistan on a potential $1-2 billion purchase of a 15% stake in its Reko Diq copper and gold mines.
These numbers are big, but, in global terms, are ridiculously small compared to the $15 trillion excitement about AI. The ultimate reality check and irony is that one company, Nvidia, is currently valued at more than $3 trillion. In stark contrast, the entire global mining sector is valued at circa $2 trillion. Clearly, there will be no credible AI roll-out without a functional electricity grid and energy storage infrastructure. How long before tech investors start to scream for more mining and copper production investment? Probably in less time than it took for Mr Copper’s illegal trading arrangements to be discovered. Meanwhile, we plan to sing the mining story before the screaming……
