[Global Focus] Riding the Big Wave of Eco-Friendliness... Start of the Raw Materials Supercycle

US-China Intervention Causes Raw Material Market Pause... Green Policies Drive Prices Amid Market Turmoil
Copper Prices for Electric Vehicle Materials May Rise 50%... Inflation Risk from Rush to Eco-Friendly Measures

[Asia Economy Reporter Park Byung-hee] The upward momentum in the raw materials market has come to a sudden halt. Following the U.S. Federal Open Market Committee (FOMC) meeting on the 15th-16th (local time), the dollar strengthened, and on the 17th, China announced it would release raw materials such as copper and aluminum into the market to stabilize prices. On the 17th, when negative factors emerged consecutively from the U.S. and China, the Bloomberg Commodity Spot Index plunged 3.5%. Although the commodity index rebounded for two consecutive trading days afterward, it remains about 5% lower than this year's peak recorded on the 4th.

Despite the turmoil in the raw materials market, Bloomberg News analyzed on the 18th that the commodity rally is not over yet. Bloomberg cited demand driven by green policies as one of the reasons for the sustained commodity strength and advised paying attention to eco-friendly raw materials. Specifically, regarding copper prices, China's announcement of releasing copper inventories may be a short-term negative factor, but in the long term, demand growth driven by green policies is expected to push copper prices higher.

◆ Copper, a precious resource in the electric vehicle era = On the 21st, the London Metal Exchange (LME) 3-month copper futures closed at $9,180 per ton. This is a 12.2% drop compared to the all-time high of $10,460 recorded on the 11th of last month. However, compared to prices a year ago, it is still up by 56%. The sharp rise in copper prices over the past year was due to expectations that green policies would drive copper prices higher in the long term.

In April, U.S. investment bank Goldman Sachs released a report titled "Copper Is A New Oil," forecasting that copper prices would rise to $15,000 per ton by 2025. Bank of America (BOA) went further, warning that if supply does not increase, copper inventories could be depleted within three years, and copper prices could reach $20,000 per ton by 2025.

Copper is known as "Dr. Copper," as its price is considered a barometer of economic trends. This is because copper has excellent electrical and thermal conductivity and high workability, making it widely used as a material in various industries. Copper's status is expected to rise further in the green era, as it is a key material in manufacturing electric vehicles, solar power panels, and wind turbines.

According to Goldman Sachs, electric vehicles require more than five times the amount of copper compared to internal combustion engine vehicles. Goldman Sachs forecasts that copper demand for electric vehicles will increase by 40% by 2030, with a supply shortfall of 8.2 million tons expected.

Ivan Glasenberg, CEO of Glencore, the world's largest commodity trader, emphasized at an online conference last month that major countries have set goals to achieve carbon neutrality by 2050, and to meet the resulting copper demand, an additional 1 million tons of copper must be produced annually. He predicted that copper prices could rise by 50% due to the global expansion of green investments.

◆ Carbon neutrality requires metals = Along with copper, lithium and cobalt, which are used in electric vehicles, wind turbines, and batteries, are also expected to face absolute supply shortages due to increased demand in the green era. The International Energy Agency (IEA) analyzed that achieving carbon neutrality goals will require an annual investment of $5 trillion in the energy system sector by 2030, which is more than twice the average investment over the past five years.

The IEA also forecasts that demand for key critical minerals will increase more than sixfold by 2040. It analyzed that the volume of mineral resources needed for electric vehicles is six times greater than that for conventional internal combustion engine vehicles. Additionally, demand for minerals used in wind power generation is nine times higher than that for natural gas power plants. The IEA expects that due to the transition to a green economy, demand for copper and rare earth elements will increase by 40%, nickel and cobalt by 60-70%, and lithium by 90% by 2040.

◆ Rushing green policies may cause inflation = As expectations rise that raw material prices will increase thanks to demand from electric vehicles, solar, and wind power, warnings have also emerged that the transition to a green economy could inadvertently trigger inflation.

Andrew Bailey, Governor of the Bank of England (BOE), emphasized on the 1st at an event hosted by a media company that green policies must be implemented in a planned manner. Governor Bailey warned that if green policies are pursued recklessly without properly analyzing their future impacts, they could cause inflation and slow economic growth.

Larry Fink, CEO of BlackRock, the world's largest asset management firm, also advised at the Green Swan Conference hosted by Deutsche Bank in Germany earlier this month that while companies must actively strive to achieve carbon neutrality goals by 2050, green policies should not be rushed. He pointed out that rushing could trigger inflation, which would cause difficulties for many emerging countries.

Fink cited the example of aviation fuel. He noted that eco-friendly biofuels are currently 50-60% more expensive than fuels derived from greenhouse gases, warning that rushing to adopt green fuels could lead to increased airfares. Fink emphasized that to move toward a green economy, governments and regulators must accept higher inflation and that technological advancements must precede to prevent rapid inflation.

The Network for Greening the Financial System (NGFS) analyzed in a report released on the 31st of last month that to achieve carbon neutrality by 2050, carbon emission allowance prices must reach $160 per ton by 2030. This year, the European Union (EU) carbon emission allowance price has roughly doubled and is currently trading at about 50 euros per ton. Rising carbon emission allowance prices translate directly into increased costs for companies.