The rapid development of new energy automobile industry, so that the upstream and downstream enterprises have achieved high-speed growth, the emergence of a number of excellent enterprises. And New Energy vehicles on lithium, cobalt, nickel and other metal use, so that a number of related resources stocks benefit. But in fact, in addition to lithium, cobalt, nickel, copper, aluminum in new energy vehicles is also very widely used. Copper is mainly used in the production of automotive generators, motor rotor and coil. At present, there are two ways to develop new energy vehicles, one is to increase the energy density of new energy vehicles, the other is to reduce the weight of new energy vehicles. Without increasing the energy density of new energy vehicles, weight reduction, range can be increased, and aluminum can partially replace steel, can reduce the weight of the vehicle. Today we're going to focus on copper.

1.Use and demand of copper in new energy vehicles

Because copper is a good conductor, corrosion resistance, ductility, ductility, and far cheaper than the same conductor of gold or silver, making it an ideal wire material. Copper is mainly used for generators, motors and wires in the production of electric vehicles. Each new-energy vehicle uses about 91 kilograms of copper, four times as much as a conventional fuel car. More copper is also needed for home car chargers and public charging stations. The International Energy Agency predicts that electric vehicle sales will more than triple over the next decade, from 5.1 million in 2018 to 23 million in 2030. It is estimated that by 2030, the electric car industry will need 2M tonnes of copper a year. (information from the mining industry). At the same time, due to the development of electric vehicles, electricity demand will increase significantly, power generation, transmission, substation equipment production, also need a lot of copper. Other changes taking place in the energy sector, such as ultra high voltage transmission, environmentally friendly solar power, wind power, energy storage and the associated distributed smart grid, require more copper. Copper, the most important strategic metal in the early stage of human civilization, will once again embrace new glory.

2.Shortage of supply

The biggest problem on the supply side is the inability of existing copper mines to ensure their future, and it is well known that the global cost of mineral exploration has been significantly reduced since 2011, during a period of commodity depression, the production of copper mines in the last ten years has mainly eaten up the previous exploration capital and consumed the previous exploration achievements. The reserves of some large copper mines are decreasing. With the development of the original copper mines, some open-pit mines are shifted underground, this leads to increased costs, which further reduces production. BHP BILLITON'S ESCONDIDA copper mine, the world's largest, for example, has switched from open pit to underground mining before resuming full production this year. The world's second-largest copper mine in Glasberg, Indonesia, is running out of high-grade ore and underground, running out of deposits and reaching the end of its useful life. To increase production it is necessary to increase the capital investment and exploration cost of the copper mine. There is a 6-7-year cycle in copper production, that is to say, if the exploration capital input of the largest copper deposit is increased from now on, the average output of copper will not occur until 6-7 years later. In 2007, for example, when the price of copper went up, the mining giants around the world poured money into copper exploration. The world's supply of copper did not peak until 2013, but tragically copper prices began to plummet in 2013 and the industry lost money in 2016. This year is 2020, and the copper capacity that is now being produced will come mainly from capital investment between 2013 and 2014. Since 2014, capital investment in copper exploration has plummeted along with the price of the mine, which means that new capacity will fall between now and 2022. Fifty percent of the world's copper deposits have been mined for more than 50 years, and since 1990, copper production, average grade, has been declining, and mining costs have continued to rise. Old Copper resources are being depleted and mining costs are increasing, while new copper mines have not been found much. So there will be a serious shortfall in the global supply of copper. The dilemma of Global Copper Development is not just about capacity and capital investment, but also about policy reasons. Chile, for example, is reviewing a bill called the glacier act, which would ban mining above the snow line and permafrost. If the bill is passed, it could lead to a significant reduction in Chile's copper production. Chile, which supplies 30 per cent of the world's copper, has lost 25 per cent of its taste over the past decade, leading to a decline in global copper ore grades. Peru, also a big copper miner, is also politically risky, having had three presidents in a week last month. In addition, Peru's Institute of Mining Engineering says the country will no longer pursue increases in copper production, but rather increases in copper mine profits. Six of the world's top 10 copper mines are in Peru and Chile. Whereas it used to take a dozen countries to sit down to cut production and protect prices, it now takes Chile and Peru just a phone call for the two leaders to hammer out global copper capacity and prices. After 13 years of chronically depressed mineral prices, policy makers are under the illusion that prices will stay low forever, that their own mining is not as good as their overseas purchases, and that they will spare no effort to crack down on the industry, such as Article 35 of 2017, requiring that the proceeds from the transfer of mining rights be collected before a mining licence is obtained, which are collected in a lump sum by multiplying the reserves by the market price and a factor, this allows new entrants to the mining industry generally need a loss of more than 5 years to obtain positive cash flow, resulting in mining rights around the country few people involved in the auction, the discovery of mining rights, most do not re-mining. China's self-sufficiency in copper concentrates has fallen from 40% in 2010 to 22% in 2019. Some of China's traditional copper companies are also subject to resource depletion, slowly copper smelting or copper processing into the main industry.

3.the inventory continued to decline

Since 2013, global copper inventories have entered a gradual long-term decline channel. Copper prices have been rising since June 2020 and inventories have been falling, with London copper stocks falling below 100,000 tonnes in September. Copper inventories remain depressed at about 150,000 tonnes, despite almost daily record highs for the metal. At the same time, the domestic copper smelting costs are low, the copper smelting enterprises are losing money, the power to expand production is insufficient.

4. The cycle of the dollar and the excessive issuance of money

"Poor Dad, Rich Dad" said that money is not real wealth, money is only recognized things, in addition to gold, copper also exists financial, in the Iron Age, copper long as a currency in circulation. The dollar is now the world's legal tender, so copper, as a financial asset, is also responding to fluctuations in the dollar, which is mostly negatively correlated with copper prices. There is a 9-10-year cycle of depreciation and a 5-7-year cycle of appreciation of the United States dollar, each of which has a significant impact on the economies outside the United States where the dollar is used. The depreciation cycle uses the printing press to produce large quantities of dollars, and then countries buy large quantities of goods all over the world, sharing the global economic prosperity brought about by the easing of the dollar.

71-year dollar decoupling gold, into the depreciation cycle, oil, copper, gold ushered in a big bull market. Copper prices rose from $1,252 a tonne in 1972 to $3,031 a tonne in 1974. In 1985, the United States forced Japan, Germany, France and Britain to sign the Plaza Agreement at the Plaza Hotel in New York. The core content of the agreement was: Let the currencies of Japan, Germany, Britain and France appreciate and the dollar enter a depreciation cycle, copper prices rose from $1,400 to $3,400 in 1986-89. In 2002, the dollar began to depreciate, the dollar out of the world, triggering a commodity bull market. Emerging markets boom, so there is the rise of the "brics" , giving birth to the 2003-07 bull market in Hong Kong stocks and 2005-07 a-share bull market, Hong Kong stocks trading volume increased, 2007 Hong Kong stocks trading volume reached 56 times of 2002. At the same time shipping, non-ferrous stocks also have a good rise. Copper prices rose from $1,450 a tonne in 2002 to $8,160 a tonne in 2007. After the subprime crisis of 2008, the Fed adopted quantitative easing, which led to copper rising from $2,600 a tonne to $9,600 a tonne in 2009-10. Combined with the historical law, each week of depreciation of the dollar after the beginning of a few years, copper prices have a very large increase. Trump's 20-year flood has seen the dollar turn from appreciation to depreciation and asset bubbles created by quantitative easing of the dollar, similar to the subprime crisis.

All told, next year could see a bull run like the one in 2003-07 or 2009-10. This brings investment opportunities, such as Zijin Mining, western mining and other copper mining enterprises. 

Source: Bank of Fen River

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