There is a rising global demand for copper, and experts estimate that a substantial percentage originates from green energy technologies. Specifically, copper serves as an integral material in manufacturing electric vehicles (EVs) alongside the overall EV infrastructure. Analysts say an phenomenon dubbed supercycle, is heavily driven by the growing demand of copper from the green energy sector.
Industry experts favor copper due to its high conductivity (second only to silver), applying a higher percentage of the metal to EV engines than conventional combustion types.
With countries like China and Israel planning to phase out fossil fuel transportation soon, the demand for green energy and copper may soar to new heights.
Understanding Past Copper Trade Cycles
Experts evaluated copper prices at an estimated $9,900/tonne in 2020, nearly matching its all-time high in 2011 at $10,190/tonne. During steep copper prices in the past, many construction companies had to cancel and delay projects due to diminishing returns. Decision-makers approved many construction projects scheduled for 2021-2023 during 2016-2018, where copper prices stood at a low rate of $6,500/tonne.
The predicted upcoming copper supercycle may put further construction projects on hold, a situation complicated by the rise of EV technology. However, experts believe that mining and construction companies can negate the oncoming disruptions by increasing CAPEX, and now could be the time for action.
One example comes from the BHP Spence Mining facility in Chile, scheduled to produce 300,000 tonnes of copper per annum from 2023. According to industry forecast, the EV industry’s copper demand will steadily increase across the next few years, at $4 million tonnes in 2025 and up to $5.2 million in 2030.
An Overview of EV Sale Trends
There are three primary categories of electric vehicles involved in the EV market. These include hybrid electric vehicles (HEVs), plug-in hybrid electric vehicles (PHEVs), and battery electric vehicles (BEVs). Copper makes up a crucial component in all EV types, which have seen a significant rise in demand within the last decade.
HEVs involve a combination of energy and conventional propulsion systems. These may include electric batteries and heat engines with a hybrid gas turbine engine. Similarly, PHEVs contain both internal combustion engines and electric motors powered by green fuel. BEVs are the latest EVs to hit the market, offering a purely electric take on transportation with rechargeable batteries.
According to McKinsey, EV sales rose by 65% between 2017-2018, and specifically, Europe saw expanded market share growth by 44% between 2019-2020. EV numbers remain high despite disruptions caused by the new normal, as countries stay consistent in the green energy trend.
Additionally, governments worldwide have implemented incentives for EV usage to encourage large-scale transitions among motorists. For example, Japan has issued subsidies for EV purchasers based on the price difference with internal-combustion models. The United States Federal government provides tax rebates for EV motorists according to vehicle size and battery capacity, while the UK exempts EV users from specific road taxes.
Consistent growth in the EV industries and other market considerations such as an estimated supply gap of 4.5million tonnes of greenfield project capacity places copper under close watch for investors, with the potential for a supercycle and high profits.
Copper Stock Forecast
BHP Group
Australia-based BHP Group (NYSE: BHP) oversees the Spence mining facility in Chile, targeting accelerated copper production over the next few years. The company has multiple portfolios across various resources, primarily focused on copper and ore, key growth revenue providers globally.
Additionally, BHP recently invested $50 million in Jetti Resources, an Australian copper mining facility, toward developing a novel extraction technology. According to BHP, the technology improves copper extraction operations safely and responsibly to fulfill the increasing demand for the metal.
BHB carries a strong buy signal over short and long-term averages, valued at $75.87 on June 11 and expected to rise the next three months.
Southern Copper
Aside from EV production, alternate fuel companies like Arizona-based Southern Copper (NYSE: SCCO) may ramp up copper productions to account for increased energy distribution and storage demand. Southern Copper offers the technology and expertise in copper refinement. The company’s relative strength (RS) rating rose to 72 from 69, potentially signaling a continuous uptick for the copper company.
Southern copper stocks closed at $66.95 on June 11. The company’s earnings significantly increased 254% YOY to 99 cents per share, with revenues jumping 47% to $2.53 billion vs. the year-ago period. It is a good time for investors to consider placing the Southern mining leader on their copper watch list.
Pampa Metals Corp
Some investors may consider rallying behind an undervalued copper stock like Canada-based Pampa Metals Corp’s (OTCMKTS: PMMCF). With eight mining facilities in Chile (the largest copper producer worldwide), Pampa Metals Corp could grow exponentially in the next few years with fresh opportunities and pressing copper demand.
The company focuses on exploratory efforts to discover new mining prospects in South America, specifically in Chile. Notably, the company invested in a geophysical project along Arrieros, a potential copper, gold, and molybdenum excavation site. Current PMMCF stocks value at $0.50 (June 19).
Closing Thoughts
Green energy seems set to replace fossil fuels in the next decade, and copper is a precious resource pegged to the shifting demand. Investors should take the rare opportunity to invest in copper stocks before the foreseeable supercycle, primarily focusing on leaders in exploration that may stumble upon additional sources of the precious reddish-brown metal.
