Nasdaq TradeTalks: How the Demand for Copper Could be Impacted by the Transition to Cleaner Energy

March 15, 2024 | 7 mins

Steve Schoffstall visits Nasdaq TradeTalks to talk about Sprott’s continued expansion in the critical minerals sector, including the launch of Sprott Copper Miners ETF (COPP). Steve touches on the demand for copper in the ongoing global energy transition and what it means for the copper market overall. 

Video Transcript

Jill Malandrino: Welcome to Nasdaq Trade Talks. I'm Jill Malandrino, Global Market reporter at Nasdaq. Steve Schoffstall, Director of ETF product management at Sprott Asset Management, is joining me for this segment. He joins me to discuss how the transition to cleaner energy could impact the demand for copper. It is great to have you with us, Steve. Welcome to Trade Talks.

Steve Schoffstall: Thanks for having me, Jill.

Jill Malandrino: Let's talk about Sprott for a moment. Over the last few years, you've expanded your footprint in the critical minerals sector. What minerals are of particular interest to you?

Steve Schoffstall: We tend to look at the minerals in three separate buckets. We look at the generation of cleaner energy. That would be things like silver, uranium and rare earths. We look at the transmission of cleaner energy. We think of copper mostly for that. Then, we will also look at the storage of cleaner energy. You think of the battery metals. We think mostly of lithium, nickel, cobalt, graphite and manganese.

The reason we focus on these nine is that we think that as we go through this energy transition, they may likely see significant growth. In contrast, some other minerals, like zinc or aluminum or steel, that also play a role in the transition, see a lot of their uses coming outside of the transition. Copper is one of those minerals that we're starting to get a lot of investor interest in.

Jill Malandrino: How is the demand for copper expected to be impacted by the transition to cleaner energy?

Steve Schoffstall: Copper is almost like the Swiss Army Knife of metals. It's anywhere where electricity flows. You need copper there to move the electricity along. It's the second most conductible metal outside of silver. Typically, we see copper being used in many applications because silver is just too expensive, and the scale of which we need to move electricity as we go through the transition, silver would just be cost prohibitive.

When you start looking at different applications within the energy transition, one that requires a lot of copper is electric vehicles. When we look at electric vehicles (EVs) versus traditional gas-powered cars, we need about 2.4 times the copper for one car [Source: BloombergNEF]. As we're expecting to see significant growth in EVs and their adoption, we're hoping to see the demand for copper grow along with that.

Regarding EVs, copper is not just used in the vehicle itself. When you start to think about the charging infrastructure, there are a lot of uses for copper there as well. If you look at just one charging station, for example, depending on the technology being used, we could see somewhere from about two pounds up to almost 20 pounds of copper in one single charging station.

If we look at all the copper produced throughout human history, it's about 700 million tons. If you look out through 2050, we're expecting to need about 1.4 billion tons [Source: S&P Global Market Intelligence]. Over the next 26 or 27 years or so, we expect to need about two times the copper that we've mined throughout human history.

Jill Malandrino: What challenges do you see with meeting the increased demand for copper?

Steve Schoffstall: Copper is one of those metals we've mined for most of human existence. It's the third most mined metal outside of gold and iron ore. Because we've been mining it so long, we've gotten to and used up most of the easy copper. If we were to go back through the last century and a half or so, we would see that ore grades have declined significantly from about 5% down to 1%. What that means is that as miners are starting to move earth and trying to bring more copper to market, they have to move a significant amount more of material than they would have had to just several decades ago, let alone 150 years ago.

We also have an issue where, since we've mined the easy copper, we're having fewer mines of great scale and great deposits being discovered. Those are becoming less and less frequent. When we find copper, it tends to be in more remote places, so the infrastructure is not generally readily available.

Then, finally, once you find a mine and go through the permitting process in construction and get to the point where you can begin producing, it generally takes about 16 and a half years or so on average to get that metal out of the ground and into the market. From a supply standpoint, those are some of the overhangs we see as we move through this energy transition.

Jill Malandrino: Of course, we're seeing that in the EV space in particular, due to the scale and manufacturing. The question is, if there is so much demand, why have copper prices fallen? The outlook is that optimistic?

Steve Schoffstall: I think there's a bit of a recency bias if you look at prices within copper. If you go back to the turn of the century, about 24 years ago, you would see copper was about $2,000 per ton. If you come to where we're at now, we're up around $8,500 per ton. Recently, over the last two years or so, we've seen prices come down slightly from about $10,000 to $8,500 a ton.

Some of what you see there is copper's reputation as a barometer for the health of the global economy. We're starting to see that wane a little bit. If you look at China, for example, it's traditionally been a bellwether. Copper has been a bellwether for the Chinese economy. We're starting to see a decoupling. If you go back to the middle part of 2021, we see physical copper performing quite well, even though the Chinese economy has struggled.

What we're seeing for that reason is largely spending as it relates to the energy transition. Last year, we saw almost $1.8 trillion on a global scale spent on the energy transition. Much of that comes from China, the world's largest investor in the transition. About $600 billion of that, even a little more than that, was invested into building out the infrastructure and everything needed for electrified transportation.

In our view, China's increased spending and other global spending as it relates to the energy transition is supporting copper prices.

Jill Malandrino: Finally, Steve, at the last minute here, how can investors participate in the growing demand for copper?

Steve Schoffstall: We have two ETFs. Both are pure-play strategies.¹ We have the Sprott Copper Miners ETF (COPP), and then we also have the Sprott Junior Copper Miners ETF (Ticker COPJ). Both ETFs employ a pure-play strategy, meaning that at least 50% of their revenue or assets of the underlying constituents are tied to producing copper. Think of miners, developers and explorers being held by these ETFs. They're the only two that have that pure-play focus.

A lot of other strategies you'll see may have much more diversified miners, and you're starting to get exposure to other metals that you might not want in your portfolio if you're trying to target that copper opportunity.

Jill Malandrino: Steve, we appreciate the insight. Thanks for joining me on Trade Talks. I'm Jill Malandrino, Global Markets reporter at Nasdaq.

Steve Schoffstall: Thank you.