FOCUS: Copper shrugs off EV bullishness
In the bullish frenzy spurred by the hype surrounding electric vehicles (EVs) in the days following LME Week, one key metal was seemingly, and surprisingly, unaffected by the trend: copper.
Copper is anticipated to play a large role in the expected surge of demand in EVs because they use more of the metal compared to internal combustion vehicles. Infrastructure such as charging stations, required to support the growth of EVs, is also expected to give a significant boost to copper demand.
In a scenario where 100% of the world’s vehicles are electric, copper demand would be expected to increase 21% compared to current global demand, according to a report released by UBS in May. The report also expects the EV market to account for 13.7% of global car sales.
But so far, copper has shrugged off any signs of EV anticipation.
London Metal Exchange movements
Copper is down approximately 2.8% since the beginning of September. Though the LME three-month copper price bumped up in November to around $6,900, up 1.5% from September, on the back of potential strike action, since then the metal has seen a substantial sell-off.
This is in contrast to some of the sharp upward movements in some of the more EV-exposed metals.
On the LME, three-month nickel jumped to its highest level this year-- though its performance has been volatile.
Nickel is down close to 7.5% since the beginning of September. It rose to around $12,900 per tonne, however, immediately following the annual gathering of the metals industry, up nearly 7% since September, though prices have come off in the past few weeks concurrent with fading EV sentiment.
That initial spike was on the back of EV excitement following bullish market expectations coming out of LME Week.
The physical side of nickel remains strong. Metal Bulletin assessed Shanghai full-plate cif premiums up to $280-300 per tonne on Tuesday December 5. In Europe the uncut cathode premium in-warehouse Rotterdam was at its highest level in more than six years at $200-250 per tonne on December 6.
Cobalt gained significantly as well, hitting an all-time high of $74,000 per tonne on its three-month contract Monday December 11, up 55% since the beginning of the year.
Metal Bulletin assessed high grade cobalt on an in-warehouse basis at $32.50-$36.39 per lb December 8, a level unseen since 2008. Low grade cobalt on an in-warehouse basis also hit a nine-year high at $31.85-32.75 per lb.
Copper’s apathy to the expected EV growth is surprising to some.
“Nickel and company will gain traction but copper should sensibly boom first,” one European floor trader said.
One reason copper is apathetic towards the bullish EV trend: it is more exposed to a variety of different market moving issues – from economic growth to currency fluctuations.
In Trafigura’s 2017 annual report released on Monday December 11, copper was driven higher earlier in the year on promises of major stimulus and infrastructure spending in the US, which did not materialize by the fiscal year-end. A weaker dollar also helped prices earlier in the year, the company said.
“There are more drivers affecting the copper market. It will have a greater impact on smaller [nickel, cobalt and lithium] markets,” said Xiao Fu, head of commodity markets strategy at Bank of China International Global Commodities.
Similar to copper, aluminium has also somewhat disregarded the initial EV boost. In that earlier UBS report, aluminium would see a 12% boost in demand in a 100% EV world. The metal is up around 22% to $2,010 per tonne, mostly on the back of smelter cuts in China earlier this year.
Supply is expected to draw down through 2018, but there is still ample stock. Nearly 1.1 million tonnes remain on the LME and roughly 6 million tonnes are estimated to be stored off-exchange.
Though copper has seemingly missed the initial EV spike, it still has opportunities to take advantage of the trend in the medium to long term.
“It’s more of a medium-term story,” Fu said, adding. “People talk about the real growth being from 2020, so it’s still two to three years away.”
Copper demand is expected to increase roughly 1 million tonnes to meet the needs of the EV sector by 2025, one source at CESCO Asia earlier this month said. Such a growth in demand could potentially trigger supply growth from new mines.
EVs are expected to use 80-100 kg of copper, around four times more than a diesel car, according to Fu.
Charging stations and the infrastructure required to run EVs are expected to have an even larger effect on copper.
“Before EVs will come the charging stations, the wires, everything that uses more copper than any other metal,” one European floor trader said.
Alice Mason and Perrine Faye in London contributed to this report