ALL TIME HIGHS
Copper has been on a bullish run from March 2020’s lows of $2.10/lb to a breakout over all time highs to $4.88.
That’s over 130% increase in just over a single year.
You might think we’ve reached the top but the copper rush is just getting started. Let us tell you why.
TREND 1: GREEN ENERGY
As the effects of climate change are becoming more apparent, low CO2 renewable energy systems such as wind, solar, and hydro are increasing in utilization.
And guess what they all have in common? They use copper – and a lot of it – 5-6X more than in traditional systems.
It is predicted that by 2050 the utilization of renewable energy systems will climb from the current mid-20%’s to over 70%.
If you’re thinking that we’re going to need a lot more copper to make that happen, you’re not wrong!
Add to that that copper itself is a very sustainable material which can be 100% recycled indefinitely without losing any of its conductive properties or performance and is the conduit of connecting renewable energy to the grid.
TREND 2: EV’S
Although currently a relatively small market (4.6% of all car sales in 2020), EV registrations increased by 41% last year globally.
In the US alone there is expected to be 7 million electric vehicles on the road by 2025 – up from 1.5 million in 2020 – an increase of 4.5X.
While electricity takes up 25% of total CO2 emissions, transportation is even higher at 29%.
Electric vehicles are a key part of the plan to decarbonize – and you guessed it – they also use copper – 3X-10X more than conventional vehicles.
Essential use of copper Electric Vehicle Technology | Source: Copper.org
It doesn’t stop there because these electric vehicles also need chargers and charge stations to replace the traditional gas station.
In order to support 7 million vehicles on the road in the US an estimated 5 million charge points will be needed. In total the demand for copper due to EV’s is expected to increase by 1,700 kilotons by 2027.
“Nearly seven out of ten Canadians who plan to buy a new vehicle in the next one-to-five years say they are very likely or likely to purchase a fully electric or hybrid vehicle, according to a KPMG survey conducted in January.”
– The Car Guide
Electric vehicle sales, 2000-2040. | Source: Wood Mackenzie
SHORTAGE
You might be wondering if there’s enough capacity to mine copper in the world to support this hypergrowth in the clean energy and EV sectors? The short answer is currently no – Goldman Sachs is predicting a deficit of 327,000 tons in 2021.
“The copper industry needs to spend upwards of $100 billion to close what could be an annual supply deficit of 4.7 million metric tons by 2030.”
– Bloomberg
This number could potentially double to 10 million metric tons if no mines get built and to fill that supply gap would require eight projects equivalent to the current largest copper mine Escondida in Chile.
With demand showing no signs of slowing down led by China’s 14th five year plan, Europe’s Green Deal, and Biden’s $2.2 trillion infrastructure plan, producers will be pressed to address supply issues.
COPPER IS ABOUT TO BEGIN ITS SUPERCYCLE
While the price of copper hovered around an average of $3/lb in the 2010’s most feasibility studies forced copper miners to scale down output and even halt some projects. There was an abundance of supply which kept prices for copper relatively low and suppliers became weary of oversupply from previous cycles.
So what happens when a global push for green energy catches an industry the output of which has been scaled down over the past 10 years + the end of the COVID pandemic? You get the perfect launch pad for a supercycle.
“[A supercycle] is a sustained spell of abnormally strong demand growth that producers struggle to match, sparking a rally in prices that can last years or in some cases a decade or more.”
– Fortune
Based on an expected spike in demand, coupled with an already tight market in the wake of the pandemic, the firm raised its forecasts on copper.
Goldman now sees prices average $11,000 per metric ton over the next 12 months.
It is a question of basic supply and demand.
Unlike the previous super-cycle, which depended on China, the next structural bull market for commodities will be driven by spending on green energy and transportation, for which copper is a critical ingredient with no substitutes.
OPPORTUNITY OF A LIFETIME
We find ourselves at the beginning of the biggest copper bull run in history. All indicators and predictions point to higher prices. That being said most large producers’ stocks are already relatively priced in, in anticipation.
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