Peak copper?

Forget about oil. Copper is getting pretty pricey, too.

Published March 2, 2006 9:00PM (EST)

On Feb. 6, the price of copper hit an all-time high: $2.31 a pound. For several years, worldwide demand has outstripped supply, driven largely by China's incredible appetite for raw materials of all kinds. So, naturally, the price has risen, more than doubling since 2000. And just as naturally, dark murmurs of imminent resource scarcity have started to flood the highways and byways of the Net. Forget about peak oil -- that's old news. It's time to start fretting about peak copper.

In January, researchers at Yale made a buzz when they noted that, according to their calculations, there wasn't enough copper left to be mined for everybody in developing nations to enjoy the same standard of living as those in the developed world. It seems that as a country gets richer, per capita use of copper climbs -- largely because of copper's great utility in electronic devices.

But where's that copper going to come from? Copper has been popular for at least 10,000 years, but more than 95 percent of all copper ever mined and smelted has been extracted since 1900. And as India and China race to catch up with the West, copper supplies are getting tight.

In December, a mining executive presented a conference audience with a bleak appraisal of the current copper inventory squeeze. "Globally, economic copper resources are being depleted with the equivalent production of three world-class copper mines being consumed annually; meanwhile, copper demand is increasing by more than 575,000 tons annually and accelerating." Furthermore, "only 56 new copper discoveries have been made during the past three decades," and "21 of the 28 largest copper mines in the world are not amenable to expansion, while many large copper mines will be exhausted between 2010 and 2015."

Perhaps "bleak" isn't the best word to describe this, at least from a mining executive point of view. With the global economy booming, commodity prices for scores of raw materials are surging, and mining companies are raking in the bucks. Copper company executives note with glee, for example, that hybrid automobiles use two to three times as much copper as standard vehicles. What if, in ten years, everyone in China and India is driving a hybrid? Copper prices will go through the roof! Hallelujah!

Except, if you look at the very latest statistics from the International Copper Study Group, you see some figures that tell a bit of a different story. Although consumption has outstripped supply for the last three years, drawing down worldwide copper inventories to the brink of exhaustion, last year the gap narrowed considerably, and next year, supply is predicted to outstrip consumption. And contrary to Beatty's claim that demand is increasing by 575,000 tons annually and accelerating, 2005 recorded about the same total usage as 2004. Global usage actually fell during January-November 2005, compared to a similar period a year earlier.

How is this possible? According to the ICSG, growing demand in Asia was more than offset by a decline in demand in the U.S. and Europe. And that, say analysts, is an example of the price mechanism in action. As copper prices have risen, consumers have started to substitute other materials in its place, or become more efficient in their consumption.

So, peak copper? Maybe not. For years, the low price of copper made looking for substitutes uneconomic, but now that's changed. The same may end up being true for oil, though there are big differences between oil and copper, insofar as it is a lot easier to substitute, say, plastic pipes for copper pipes in your kitchen plumbing, than it is to come up with cheap replacements for oil.

Then again, it may also be true that there won't be any cheap fixes to copper's fantastic usefulness in high-tech electronic goods, so the real squeeze is still yet to come.

How the World Works doesn't intend to be an investment advisor, and it's always a bad idea to jump into the market when the price of something has just hit an all time high ... but still, going long on copper might not be such a crazy idea. Especially if the Chinese start buying up Priuses.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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