Thematic Spotlight: Why Copper Could Limit China’s Solar Dreams

According to Bloomberg NEF, China added 216.9 gigawatts of solar power in 2023.1 That number is staggering for a few reasons. For one, the 2023 figure more than doubles the additional capacity China added in 2022. But far more impressive is the fact that China’s added capacity in 2023 was more than the US’s entire solar fleet, which currently comes to a total of 175.2 gigawatts.2

Despite being the world’s biggest polluter, China has been one of the biggest proponents of clean energy adoption over the past decade. In 2023, China accounted for roughly 58% of global solar installations and 60% of wind energy installations.3 Forecasts now indicate Chinese emissions may have peaked in 2023 and are ahead of targets for net-zero by 2030.4 However, all these installations and clean energy initiatives may soon be halted by a copper supply crisis.

The biggest driver of Chinese copper demand growth in 2023 was green energy, up around 70% year-over-year.5 Copper prices, however, have been deflated since 2022 due to weak Chinese economic forecasts. Lower prices have limited producer incentives to develop new mines and projects that increase output. This, in combination with unforeseen supply constraints such as First Quantum’s Panama mine closure, has slowly eroded global inventories over the past year.6

Signs of the supply crisis are starting to show.  Just last week, copper prices saw a one-day price jump of ~5% as Chinese smelters agreed to curb output and warned of high demand over a limited supply of raw copper concentrate.7 As other nations accelerate their pursuit of a clean energy transition, copper demand may be met with no supply to match. Copper prices will need to rise for the necessary investments for an increase in production.

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Forecasts are not guaranteed and undue reliance should not be placed on them. This information is based on views held by Global X as at 19/03/2024. Investing involves risk, including the possible loss of principal. Diversification does not ensure a profit nor guarantee against a loss.