Sometimes it's hard to see how fast things are changing, until you take a step back. Look at transportation, for example. Electric vehicles used to be tiny, funny looking cars. Remember the Reva? Everything about the Reva was small - the battery life, mileage and leg room. You could sit in the backseat but not stretch your legs.
In the last ten years however, electric vehicles have become expensive, futuristic, and can walk like a crab into a parking space.
Electric cars are just one part of the big shift in the global energy landscape, as countries move from fossil fuels to renewable energy. Countries have set ambitious plans for how and when they will achieve 'net-zero' in emissions - the US and Europe plan to reach this goal by 2050, while India is targeting 2070. However, India also wants to decarbonize 50% of its energy consumption by 2030, just seven years from now. Hitting these targets will need bold regulation, as well as critical metals and minerals.
Electric vehicles (EVs) are gaining popularity fast, and their sales surged by 60% in 2022. Now one in every seven cars sold globally is electric, and this is set to increase as battery costs fall:
Despite the semiconductor shortageaffecting EV supply in 2021 and 2022, car buyers are snapping up electric vehicles. But the higher selling price of EVs, compared to traditional internal combustion engine (ICE) cars is a challenge. And a new chokepoint is now emerging: a copper supply crunch.
High EV demand is expected to drive up the price of copper to $15,000 per tonne by 2025 (approx 60% above current prices). Copper is becoming the ‘new oil’, and holds the key to the switch to electric.
In this week’s Analyticks:
- The 'new oil': Copper supply shortage will hamper the move to electric
- Screener: Outperformers of Q4, which beat analyst estimates and are beating the Nifty after strong results
Looming copper supply issues put clean energy at risk
Governments globally are pushing for more renewable energy use, to address the climate and energy crisis. This has led to growing demand for electric vehicles (EVs), solar panels and transmission cables.
Clean energy generation has high copper usage, typically four to six times more than fossil fuels. Electric cars and bikes in particular, rely heavily on copper for the motor coil that drives the engine.
As a result, copper demand is set to soar in the coming years. Bloomberg NEF predicts a copper supply deficit of more than six million tonnes per year by the early 2030s.
Countries are now scrambling to lock down imports and production of copper, the ‘new oil’. The world's attention is on top copper mining nations like Chile and Peru, which together produced about 34% of the total mined copper in 2022.
According to S&P Global, the US is expected to import over 60% of its copper by 2035. Amid growing concerns about political instability in Chile and Peru, the US is shifting its focus to the African continent.
In December 2022, US-based startup KoBold Metals announced plans to invest around $150 million to develop a new copper mine in Zambia. This is a significant move. Zambia is the second-largest copper producer in Africa, and China has the biggest presence there. China is Zambia’s largest infrastructure creditor, and also became the largest importer of copper ores in 2021. China imported over 34% of total copper by value globally in 2021.
India however, has been slow to secure copper resources. Khanij Bidesh India, a joint venture between three PSUs - National Aluminium Company, Hindustan Copper and Mineral Exploration and Consultancy - was formed to obtain the minerals critical for India’s industrial growth, but it has not been very successful.
Since the closure of the Sterlite copper plant in Tamil Nadu in 2018, which catered to around 40% of the domestic demand, India has been a net importer of copper. The plant's closure came after protests by locals, social and environmental activists who were worried about pollution. Vedanta-owned Sterlite Copper is now exploring plans to reopen the manufacturing facility.
As a net importer of copper, India could face shortages and fail to achieve its 30% EV vision by 2030. The country's copper demand is forecast to reach three million tonnes by 2030, even as it mines only 2.5% of the copper it needs.
Copper supply deficit will worsen amid demand growth and roadblocks to mining
A 2001 Copper Association report predicted a copper supply shortfall after 65 years, based on the production rate at the time. But the report did not account for the increasing demand for copper as technologies changed. Now, copper demand is expected to rise by more than 50% between 2023 and 2040. But the metal’s supply is projected to increase by only 16%.
A major driver of copper demand is the growth in electric vehicles. A decade ago, copper demand for transport was less than half of that in construction. By 2040, transportation demand is expected to be 33% higher.
S&P Global’s worst-case projection puts the copper shortfall at around 20% of consumption by 2035.
Although it seems logical for mining companies to raise production to meet growing demand, several factors make this difficult. A new copper mining project can take over ten years to complete and start production. In fact, no new copper discoveries are expected to be operational in the next three years.
Additionally, miners now use ore grades of 0.5% copper, a quarter of the concentration used a century ago, making mining more challenging and costly.
Nobody wants a mine in their backyard
Mining companies are not very popular, because of the environmental impact. In leading copper mining countries like Chile and Peru, mining firms are facing political unrest and disagreements over taxes. In August 2022, mining CEOs warned during investor calls that Chile must reduce a proposed tax increase on copper production or risk losing investments.
India needs to focus on ramping up its sources of copper, as the metal becomes central in the clean energy transition. As we already saw with Covid-era semiconductor shortages, supply chain issues can significantly impact manufacturing plans. The looming shortage of copper is no small problem. Countries like the US and China are proactively securing copper imports, and India must do the same.
Screener: Outperformers of Q4, which beat estimates and are on the rise
In this edition, we look at a screener of stocks that have outperformed the Nifty 50 over the past week. These stocks have also seen a rise in operating profits, while beating Trendlyne's forecaster estimates for revenue or net profit in Q4FY23.
The screener includes stocks from the automobiles & auto components, oil & gas, banking & finance and hotels, restaurants & tourism sectors. Major stocks that show up in the screener are Bajaj Auto, Indian Hotels, Sona BLW Precision Forgings, IndiaMART InterMESH, KEI Industries and AU Small Finance Bank.
Bajaj Auto surpassed Forecaster’s revenue estimates by 5.2%, with a revenue of Rs 9,192.7 crore in Q4. The auto company saw a 21.8% YoY improvement in its operating profit, and increased its operating profit margin by 150 bps YoY to 18.5%. The stock rose 2.7% over the past week, outperforming the Nifty 50 index by 150 bps.
Indian Hotels’ revenue grew by 73.3% YoY to Rs 1,654.5 crore in Q4FY23, beating Forecaster estimates by 4.2%. The hotel company’s operating profit increased by an impressive 236.8% YoY, and the operating profit margin surged by 14.7 percentage points YoY to 32.9%. The stock rose 9.1% over the past week.
Sona BLW Precision Forgings saw its revenue increase by 32.6% YoY to Rs 748.5 crore in Q4FY23, beating estimates by 2.7%. The company’s operating profit grew by 48.8% YoY, helping its operating profit margin rise 246 bps YoY to 27.1% during the quarter. "I hope I never get tired of saying this," CEO Vivek Vikram Singh said, "but this was our best quarter ever, and our best financial year ever." The stock rose by 8.3% over the past week.
You can find more screeners here.
