Copper's green appeal shields against substitution
Copper's ability to conduct electricity better than other materials makes it ideal for high-tech energy solutions, and demand for the metal is rising.
Thu, Aug 04, 2011 at 07:09 AM
GREEN COPPER: A worker works at the Xinchen copper company in Nantong in east China's Jiangsu in February 2011. China has a high demand for copper as it makes a push for green sources of energy. (Photo: ZUMA Press)
LONDON - Copper's vital role as an electrical conductor will fire demand from renewable energy and technology industries even while the high price of the metal forces other industries to turn to aluminum as a substitute.
As the cost of power escalates, the growth of green energy will increase demand for copper due to its unrivalled ductile and energy-efficient qualities.
"There is only so much you can innovate. If you want the best electricity conductor, you have to use the best conducting metal," said Justin Roux, senior vice president of communications at copper product maker Luvata.
"That happens to be gold, but we're not making our cables out of gold. Why encourage more theft? The next best is copper, and it is still the best metal for the job."
Copper soared to an all-time high of $10,190 in February. Although it has slipped by around 6 percent since then, it is still up 200 percent from 2008 lows and costs about four times as much as aluminum, the main candidate for substitution.
So far, substitution has accounted for losses of about 2 percent a year in copper usage globally over the past three years, according to the International Copper Association/CRU, and aluminum accounts for about 50 percent of that substitution.
Growth in demand for greener energy is expected to come from industrialization in emerging markets, particularly China, as it sets out plans for its new electricity grid.
China has made a binding commitment to reduce its energy intensity, the amount produced per unit of GDP, by 16 percent over 2011-2015 and to cut carbon intensity by 17 percent over the same period.
In January the country unveiled a raft of targets for its energy and power sectors, including a plan to modernize its rural power grid. Power cables have a high copper content.
Chinese officials might consider switching into aluminum because aluminum is cheaper, more readily available and China would not need to source so much material from abroad.
But the sacrifice in conductivity erodes much of these advantages, analyst Duncan Hobbs of Macquarie said.
"Aluminum has roughly 60% of the conductivity of copper, so other things being equal you would need to install roughly two-thirds more generating capacity and burn that much more fuel," he said.
"So what you might save on copper rather than aluminum you might have to pay elsewhere."
The surge in demand from the national grid alone accounts for 50 percent of Macquarie's forecast for Chinese copper demand growth for this year. China is the world's biggest copper consumer, accounting for 40 percent of global demand last year.
The forests of wind turbines that have sprung up across Europe in recent years also require substantial amounts of copper.
"The growing desire for more energy-efficient products means that it's not as attractive to substitute out of copper and cables," Barclays Capital analyst Gayle Berry said.
Wind power generation, which uses copper in electric motors and windings, is a small but growing market, as are solar panels and electric and hybrid cars.
Wind turbines range in size from 500 kilowatts to 3.0 megawatts and contain a high efficiency turbine that uses nearly 1,400 kg of copper per megawatt, according to figures from the International Wrought Copper Council.
Because of their height, the turbines are susceptible to lightning strikes, and each typically needs another 450 kg of copper per megawatt in order to safely ground it, the IWCC said.
Wind currently accounts for just 2 percent of the global energy mix, but this could climb to 10 percent by 2020, according to Denmark's Vestas, the world's largest wind turbine maker by market share.
Cheaper aluminum has made inroads into some industries, especially the auto industry, where there is big demand for lighter, more energy-efficient cars. When copper prices spiked in the 1960s, copper radiators were permanently substituted with aluminum ones.
"Certainly while copper may lose out to aluminum in terms of weight, electric and hybrid vehicles still use two to three times more copper than in standard equivalent-sized vehicles," said Justin Roux, Luvata's senior vice president of communications.
"I see copper demand and copper use in applications increasing in automotives," said Barcap's Berry. "For your hybrids and electric vehicles you really do need (wiring) to be copper, because you need the most efficient energy transfer mechanism you can get."
The increasing demand for smaller, faster and more energy-efficient components also means copper is making inroads into electronics and greener lifestyles and policies.
"People want smaller phones, they want smaller PCs, and that means that semiconductors have to be smaller, and for that you need to use copper over aluminum," said Barcap's Berry.
For most of the past decade, copper prices have soared well above the cost of production, pegged at around $2,300 a ton. Where easy substitutes could be found, such as in plumbing and phone cables, they already have.
"But looking at applications now it's more difficult to find areas where there are substitutable materials that meet up to the technical demands that these products have," Berry said.
(Additional reporting by Pratima Desai, editing by Jane Baird)
Copyright 2011 Reuters Environmental Online Report