As you surely know, China is the ultimate pace-setter in the commodity market. The People’s Republic is the largest consumer of crude oil, iron ore, nickel, coal, aluminum and, last but not least, copper, by a wide margin.

China’s insatiable hunger for copper In the image, you can see the shares of different world regions in global copper consumption:

Source: Research Gate via Statista (https://www.researchgate.net/figure/Distribution-of-refined-copper-consumption-worldwide-in-2020-by-region-Source-Statista_fig2_357706903)

According to this, in 2020, China was responsible for more than half of the world’s total consumption – far ahead of Europe or the American states. And by 2022, according to Statista, China’s share is expected to have increased even further, to 55%. For us commodity investors, this is an extremely important insight. Because: China’s importance for the copper market makes it the most important indicator for price formation – and thus decisive for the profit margins of large copper companies such as Freeport-McMoRan, BHP, Glencore or Agnico Eagle.

Energy transition: Why copper is so important for the future What makes China so interesting in this context is the outlook for the future. The People’s Republic has good chances of ramping up its copper consumption even further in the future. The reason for this is the massive expansion of renewable energies currently taking place in China.

As is well known, copper is an excellent conductor of electricity and therefore crucial for many technologies of the energy transition. For example, wind power. According to the German Copper Institute, current wind turbines including infrastructure require up to 30 tons of copper to function. Ring generators of wind turbines, for example, contain windings made of several hundred kilometers of copper wire. In addition, copper is used in the motors that rotate the rotor blades, in the windings of transformers, and in other cables and lines.

This means that the more wind turbines are built (must be built), the better the demand outlook for copper. This is met by an offer that is expected to grow globally in the coming years, but according to estimates by leading commodity experts, this growth is not comprehensive and fast enough to sustainably meet the demand. As a result, the profit margins of many commodity stocks are likely to increase.

China is pushing ahead with wind and solar power: Paradigm shift in 2024? But back to China: The fact that the copper fantasy is no longer a distant future music is shown by a new study by the China Electricity Council (CEC). The industry organization recently presented its annual report for 2023. In short: By the end of 2023, wind and solar energy accounted for around 36% of China’s cumulative electricity capacity. This put wind and solar energy in second place – just behind coal (40%).

Meanwhile, the CEC’s forecast is remarkable. The experts expect the tipping point to be reached in China as early as this year. This means that in 2024, wind and solar capacities could for the first time ever surpass coal-fired capacities – a remarkable paradigm shift.

Specifically, the CEC expects 1,300 gigawatts of wind and solar capacity by the end of 2024. This would mean that the Middle Kingdom would have already met its own targets in a few months. Originally, Beijing had planned to increase capacities to 1,200 GW by 2030. Wind and solar would then already account for 40% of electricity generation capacities by the end of 2024, while coal would drop to 37%, according to the CEC.

My conclusion for you Clearly: The percentage figures for capacities do not yet correspond to the actual electricity production, but only to the theoretically available plants in comparison. Since wind and solar power are highly dependent on weather conditions, the share of production is usually significantly lower than the capacities. In reverse: In 2023, for example, according to the CEC report, almost 60 percent of electricity consumption in China was covered by coal-fired combustion.

But for us commodity investors, this is only of secondary importance. What is more important is how much copper is needed to build new wind turbines, solar plants, and power infrastructure. And in this aspect, China is a significant driver of demand, according to the new study.

By the way, the copper potential within the energy transition is certainly not limited to China. The expansion of renewables is also being vigorously pursued in Europe, North and South America, and many Asian economies.

Although the copper price has recently been held in check due to (temporary) macroeconomic challenges, I believe that there will be noticeable upward impulses in the long term. You should not underestimate this commodity in any case.

The post Mega opportunity copper: How China is now fueling the fantasy appeared first on Investor Verlag.