CNSR SCI 477 - Module 1: Group 7 by Lydia Ashton

Introduction

2024-10-02 16:01:36 UTC

The article "Why there’s a massive copper shortage" from CNBC focuses on the copper industry given that it is a measure for economic health. Written and produced by Shawn Baldwin, the article highlights points that are spoken about in the embedded video. The three main sections of this video are copper demand, companies, and mining in the United States.

Copper Demand

2024-10-02 18:15:56 UTC

Copper Uses:

Construction Indsutry
Defense Industry
Electric Cars
Electronics
Wind Turbines
Power Grids

Companies

2024-10-02 18:35:41 UTC

Production for copper is lacking due to investor pressure, and geopolitically risky positions. Investors have been pulling out of mining companies, or at least trying to cut back, which makes it hard to build new mines or expand existing ones. Mine planners have to ensure they are picking location that will not have government segments try to take over their mines-- this would be a huge waste or money for the investors. Mining companies need billions of dollars invested, and their investors most likely wouldn't see a payout for a decade or two which is a deterrent. However, stock prices for copper companies continue to increase quickly.

Copper Demand

2024-10-02 18:40:51 UTC

The first main idea about the copper shortage is the increasing demand for copper. Copper is used a lot in the construction industry, defense industry, electric cars, electronics, wind turbines, and the power grid. In recent years, there has been a shift of using more renewable, clean energy. This by itself increases the demand for copper. Wind farms that are in the ocean require 3x more copper than other energy systems. Electric vehicles use 3-4x more copper than regular motor cars. By the time 2030 comes, only 80% of copper needs will be met. Not only is demand increasing, but supply will potentially not be able to stay constant (and would decrease). This is due to the shortage of mining workers, regulatory hurdles, and pushback from citizens. A big portion of the demand increase is due to the urbanization in China-- responsible for 54% of global copper usage in 2021. Copper is not easy to mine, and to create a new mine takes a lot of resources, time and money.

Copper Demand

2024-10-02 18:41:16 UTC

Increase in Demand:

Shift to more sustainable resources and energy
Wind farms use 3x more copper than typical energy systems
Electric vehicles use 3x-4x more copper than regular motor cars

Copper Demand

2024-10-02 18:41:35 UTC

Copper Supply:

By 2030, only 80% of copper needs will be met
Shortage of mining workers
Regulatory hurdles
Pushback from local citizens
Takes lots of resources to mine

Mining in the United States

2024-10-02 18:54:10 UTC

Mining the US would mitigate risk for mining companies and investors. Rio Tinto is a company that owns and operates a mine in Utah and Arizona. They are expanding production of a current mine outside of Salt Lake City. This site is able to process the ore into pure copper. Rio Tinto supplies copper to almost only companies in the United States. In Arizona, they are working to open a mine that would be able to supply around 25% of all U.S. copper demand. They have been working on this mine for almost 20 years to get it into production. With growing environmental concerns, it is hard to get around governmental regulations and interest groups. Without increased copper production, there is slower movement on the energy transition.

Graph

2024-10-02 23:36:38 UTC

This graph shows the supply and demand for copper at different price and quantity points. In the context of copper, the upward sloping supply curve would represent the increasing difficulty and rise in costs in copper mining. This difficulty and rise in price is because of regulatory challenges, concern regarding the environment, and declining copper inventory. For the demand curve, it reflects the rising demand for copper due to renewable energy, electric vehicles, urbanization, data centers and the rise of AI and tech.

Analysis

2024-10-03 00:07:04 UTC

As far as demand goes, the equilibrium model predicts that as demand increases, prices will rise. This does align with the significant rise in copper demand due to factors such as electric vehicles and renewable energy. As the copper has become more and more sought after the producers of copper have raised the prices.

For supply, the model suggests that if the supply cannot increase at the same rate as demand because of difficulties in production of other challenges, prices will continue to increase. The aligns with what is happening with copper today as prices have continued to increase as copper production delays, declining inventories, and mining obstacles have created constraints for the suppliers.

Investors

2024-10-03 15:48:50 UTC

Opportunity Cost
- Investors have to decide if they want to spend tons of money on mining projects or if they want a quicker return and something less risky.
Interdependence
- Because mining projects could take decades, so many things could change. This is the interdependence principle. Investors would have to consider that the mining and copper market could change considerably in the coming years.

Equilibrium

2024-10-03 15:51:18 UTC

Shortage
- As the demand increases, and supply stays constant or decreases, there will be a shortage of copper.
- This will cause the price of copper to increase heavily.
Queuing
- Projects that use copper as an input will slow down as there will be a line for the copper. There will not be enough copper produced, so companies will need to wait for more to be produced.

Shift in Demand

2024-10-03 15:52:25 UTC

There will be an increase in demand for copper which is a shift of the demand curve. This is attributed to the preferences of demanders. Consumers are starting to prefer more renewable options, and copper plays a big role in this.

Shift in Supply

2024-10-03 15:58:08 UTC

The supply curve could potentially decrease, which would shift the curve to the left. This would be due to the tough environment that mines are located in and the increase of input prices including increasing wages for mine workers.

Positive Analysis

han278_1 — 2024-10-04 04:30:59 UTC

Copper demand has risen sharply due to its essential role in renewable energy, electric vehicles, urbanization and technological advancements. This demand is expected to exceed supply.
As the supply lags behind demand, copper prices are expected to continue rising. This scarcity leads to projects dependent on copper facing delays, ultimately impacting the broader renewable energy transition.
From an economic perspective, the current situation aligns with the supply-demand model, where increased demand and constrained supply push prices higher, affecting both producers and consumers.

Normative Analysis

han278_1 — 2024-10-04 04:35:08 UTC

While there's a push for more sustainable energy sources, this requires a significant increase in copper production, which involves environmental trade-offs such as mining impacts.
The copper shortage raises equity issues, as the increased costs of copper make renew energy technologies less accessible to lower income individuals, thus exacerbating global inequalities.
Governments should balance the need for a green energy transition with responsible mining practices, ensuring copper extraction is sustainable.

Conclusion on Policy Effectiveness

han278_1 — 2024-10-04 04:46:33 UTC

Efficiency: The current policy around copper mining and production seems to be ineffective in meeting the growing global demand. Without policies that encourage the expansion of mining while addressing environmental concerns, supply will continue to lag behind demand, creating inefficiencies in key sectors like renewable energy.
Equity: The situation poses equity challenges as higher copper prices make renewable technologies less affordable, particularly for lower-income populations.
Winners: Existing copper mining companies and investors benefit from the increased copper prices. Countries with large and accessible copper, and fewer regulatory barriers, may also gain a competitive advantage.
Losers: Renewable energy companies, EV manufacturers, and consumers face higher costs. Additionally, communities near mining sites may experiences environmental and social disruptions due to mining activities.

ogoneil — 2024-10-04 16:26:46 UTC