Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 411

Why copper prices are at all-time highs

Copper has played a vital role in civilisation since its discovery in the Neolithic era nearly 10,000 years ago. More than many other commodities, copper represents progress, and when it is in demand, it means industries and economies are moving forward.

Often known as Dr Copper for the uncanny way its price anticipates future economic activity, at the time of writing, copper prices hit all-time highs of $US10,460 per tonne (US$4.76/lb). Coming up from 3-year lows in the midst of the COVID-19 induced recession in 2020, current prices reflect a strong rebound as the global economy switches back on. But are these prices merely a post-COVID phenomenon or is there more to it? This article discusses the forces at play and strategies to benefit from the electric metal’s strength.

What is pushing prices higher?

There are a few forces at play that are affecting the price of copper, but for ease of explanation a simple way to group them is into supply and demand factors.

Supply factors:

  • COVID-19 dislocation: As we are well-aware, the COVID-19 pandemic resulted in widespread lockdowns leading to a drop off in global copper supply at all points in the supply chain. As the COVID-19 crisis eases (in some areas), supply chains are able to return to their normal pre-pandemic operating levels.
  • Lack of new discovery: According to S&P, of the approximately 1 billion tonnes of copper resources discovered since 1990, only 8% has been discovered in the past decade. This is despite exploration spend between 2009-2019 seeing a 68% increase on the prior decade. Given it can take 20 years for production to commence following discovery, this represents a long-term supply-side issue.
  • Diminishing ore quality: Copper ore is finite in supply and its quality has declined, which means more rock needs to be mined and processed in order to extract the same amount of copper. In Chile, the world’s largest copper producer, average copper ore grades have deteriorated by 30% since 2005. Even with reductions in ore quality, miners can’t perpetually ramp up production, there is a limit to annual production and how much copper remains to be mined.
  • Scrap supplies: While scrap metal supplies of copper are a viable and important source of supply, scrap historically takes time to respond to market dynamics, and considering COVID-19 related logistical constraints, deficits are expected in the near-term, further strengthening copper prices.

Demand factors:

  • Post COVID-19 activity and fiscal stimulus: The return to ‘normal’ activity, as well as making up for lost time through the COVID-19 lockdowns are a strong but shorter-term impact. Against the backdrop of mega trends such as mass urbanisation, demand for copper for use in building construction is one of the largest markets (e.g. water pipes, electric wiring) and while COVID lockdowns can slow a trend, they can’t stop it completely. Government fiscal stimulus is resulting in increased economic activity and thus demand for copper.
  • Clean energy transition: The US climate summit saw declarations by a number of nations to net zero emissions targets and the US re-signing the Paris Agreement. Crucially China’s President Xi also pledged to cut coal consumption starting from 2026 and reiterated the country’s 2060 carbon neutrality target. Two of the world’s largest economies reminded us that they are aligned in their pursuit of lower carbon emissions and promotion of renewable energy. Without copper there can be no decarbonisation meaning demand for copper where it relates to clean energy is set to grow strongly in the years ahead. According to the International Energy Agency, it is estimated that around 45% of demand for copper will come from clean energy technologies in 2040, up from just 24% in 2020. Total demand for copper by clean energy technologies is estimated to see a three-fold increase by 2040, requiring investment in the near-term and production to ramp up drastically to meet demand. Against some of the supply factors mentioned above, this will likely put pressure on copper prices.

Can the price keep going up?

In the near-term the precise degree of inventory reductions will be a key determinant of copper prices. Speculative positioning is rather extended, China may well slow its purchasing given high prices and moderation in consumption growth may moderate causing a price correction.

If scrap supply is able to respond sufficiently to stop major refined inventory drawdowns, the copper price would also suffer. A bull case would see easier than anticipated Chinese policies, Fed yield curve control and European growth surprises, whilst a bear case would see global policy support waning, a growth slowdown and positioning unwinding sharply.

Are the rising copper prices reflected in your copper stocks?

Five copper stocks that we hold are Ivanhoe Mines, Freeport McMoRan, Anglo American, Solaris and Hudbay Minerals (as at 30 April 2021 and holdings are subject to change). In the chart below, we plot the copper price relative to these companies’ stock prices as a growth of $100 chart since the COVID crisis in March 2020.

In our view, copper equities are the best investment vehicle for exposure to copper. Historically commodity equities have outperformed their underlying commodities due to their additional growth, value creation potential and an equity risk premium to harvest.

Growth of US$100 in copper stocks

Source: Bloomberg, Janus Henderson Investors. As at 23 May 2021. *LME Copper 3 Month Rolling Forward. ^Solaris listed in July 2020 and therefore shows no change from March to July 2020. Past performance is not a guide to future performance. References made to individual securities should not constitute or form part of any offer or solicitation to issue, sell, subscribe or purchase the security.

We see attractive opportunities in copper producers, developers and explorers. While there may be shorter-term volatility in copper and share prices, we are witnessing a long-term trend driven by the decarbonisation of the global economy, while large sources of new supply will be slow, expensive and difficult to bring to the market.

The Anthropocene Epoch is used to describe the current period in Earth’s geologic history when human activity has induced a significant impact on the planet. As we reverse this impact through a new green industrial revolution that offers cheap, clean energy, copper is very much part of the solution.

 

Tal Lomnitzer is a Senior Investment Manager in the Global Natural Resources team at Janus Henderson. This article does not in any way constitute advice or an invitation to invest. It is solely for information purposes and subject to change without notice.

 

7 Comments
Bakker
June 11, 2021

AIS comes to mind ...also a potential gold kicker.

BeenThereB4
June 10, 2021

I can't sleep without my Oz Minerals, which is a producer with long-life resources

Could also consider Sandfire

CC
June 10, 2021

OZ Minerals for me

Jim
June 10, 2021

Isn't the Statue of Liberty made of copper? Sounds like a good source - easy to access, and near a major market. They could break off a bit at a time.

Trevor
June 15, 2021

Jim !!
It was a GIFT from the French people to the American people !!
That would not be very tactful.......besides which it is awfully THIN copper sheeting !.
.
"The total weight of copper in the Statue is 62,000 pounds (31 tons) and the total weight of steel in the Statue is 250,000 pounds (125 tons). Total weight of the Statue's concrete foundation is 54 million pounds (27,000 tons).
The copper sheeting of the Statue is 3/32 of an inch thick or 2.37mm."
For example : a wind turbine has only about 600 tonnes of concrete , 200 tonnes of steel , and somewhere between
2 to 6 tonnes of copper......so you could [theoretically] make only 5 decent sized "windmills" with the copper content !
.
I'd rather NOT recycle "her" ..."she" looks much better as an ornament than a bunch of electrical equipment !
"she" is an American Icon , a symbol and a light-house and a lightning conductor all in one ! Magnificent !
And besides which , "she" has lasted MUCH LONGER than any of those other "electrical eye-sores" ever will !

Marie Elliot
June 10, 2021

What about Australian copper producers.????

Marie.

Tim
June 19, 2021

Castillo Copper (CCZ) has some promising tenements Marie, with another drilling program under way.

 

Leave a Comment:

     

RELATED ARTICLES

Australia’s bounty: is it just diversified luck?

Ukraine-Russia conflict update: Compendium of research

4 key materials for batteries and 9 companies that will benefit

banner

Most viewed in recent weeks

Is it better to rent or own a home under the age pension?

With 62% of Australians aged 65 and over relying at least partially on the age pension, are they better off owning their home or renting? There is an extra pension asset allowance for those not owning a home.

Too many retirees miss out on this valuable super fund benefit

With 700 Australians retiring every day, retirement income solutions are more important than ever. Why do millions of retirees eligible for a more tax-efficient pension account hold money in accumulation?

Reece Birtles on selecting stocks for income in retirement

Equity investing comes with volatility that makes many retirees uncomfortable. A focus on income which is less volatile than share prices, and quality companies delivering robust earnings, offers more reassurance.

Superannuation: a 30+ year journey but now stop fiddling

Few people have been closer to superannuation policy over the years than Noel Whittaker, especially when he established his eponymous financial planning business. He takes us on a quick guided tour.

Is the fossil fuel narrative simply too convenient?

A fund manager argues it is immoral to deny poor countries access to relatively cheap energy from fossil fuels. Wealthy countries must recognise the transition is a multi-decade challenge and continue to invest.

Anton in 2006 v 2022, it's deja vu (all over again)

What was bothering markets in 2006? Try the end of cheap money, bond yields rising, high energy prices and record high commodity prices feeding inflation. Who says these are 'unprecedented' times? It's 2006 v 2022.

Latest Updates

Retirement

How to enjoy your retirement

Amid thousands of comments, tips include developing interests to keep occupied, planning in advance to have enough money, staying connected with friends and communities ... should you defer retirement or just do it?

Retirement

Results from our retirement experiences survey

Retirement is a good experience if you plan for it and manage your time, but freedom from money worries is key. Many retirees enjoy managing their money but SMSFs are not for everyone. Each retirement is different.

Interviews

Why short-termism is both a travesty and an opportunity

On any given day, whether the stockmarket rises or falls is a coin toss, but stay invested for 10 years and the odds are excellent. It's at times of market selloffs that opportunities present for long-term investors.

Investment strategies

Fear is good if you are not part of the herd

If you feel fear when the market loses its head, you become part of the herd. Develop habits to embrace the fear. Identify the cause, decide if you need to take action and own the result without looking back. 

No excuses: Plan now for recession

The signs of a coming recession are building, especially in the US. In personal and business decisions, it's time to be more conservative and engage in risk management until some of the uncertainty is resolved. 

Strategy

The fall of Volt Bank removes another bank competitor

The startup banks were supposed to challenge the lazy, oligopolistic major banks, but 86 400, Xinja and now Volt have gone. Why did Volt disappear so quickly when it had gained deposit support and name recognition?

Strategy

Three main challenges to online ads and ‘surveillance capitalism’

Surveillance capitalism refers to the collection and use of consumer data to further profits. Will a renewed focus on privacy change the online-ad business model, or is it too entrenched?

Sponsors

Alliances

© 2022 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.