Copper’s new supercycle

Fresh highs and the long-term story

There has been much optimism around copper of late. Copper futures climbed as high as $9,164 per metric ton in March, reaching an 11-month high. There is evidence that the commodity is entering a new supercycle.

So why is this happening? Firstly, it’s important to provide some background about the metal. Copper comprises the third largest metals market by U.S. dollar value, behind iron ore and gold.

Its durability and malleability have diversified its application profile, with its uses ranging from construction, to transportation, to machinery, to consumer goods. Copper plays a critical role in society, and its large market size and wide-ranging applications have historically made its price a barometer of the global economy.

But perhaps most importantly, copper has superior conductivity, second only to silver. This has made it is central to electricity transmission. And as decarbonisation means electrification, copper’s importance has surged.

As the energy transition begins to accelerate, we are seeing increased demand for copper to be used for upgrades and expansions to electricity grids, in electric vehicles (EVs), and in clean energy sources themselves.

 To achieve net-zero, copper demand may increase by around 1.6x. Bearing in mind we are focusing on the world’s third largest metals market, this is quite a jump.

According to the IEA, EVs require 2.4x more copper than a conventional internal combustion engine car, solar and onshore wind require 2.5x more copper than their fossil fuel counterparts – and offshore wind requires 7x more copper. The bottom line, is that decarbonisation requires a large amount of copper.

To achieve net-zero, copper demand may increase by around 1.6x. Bearing in mind we are focusing on the world’s third largest metals market, this is quite a jump.

However, as the below chart demonstrates, supply is potentially unable to keep pace with this demand, with a deficit beginning to form.

Source: BloombergNEF Transition Metals Outlook 2023. For illustrative purposes only. 

Another driver for copper may be a growth in infrastructure projects more generally. It is increasingly recognised that states have neglected significant infrastructure investments for several decades. The emerging deglobalisation trend is expected to boost these construction undertakings. Copper could be a major beneficiary.

From the chart below, looking at copper-to-S&P 500, we can see that China’s 2000s buildout had a strongly positive effect on copper. If the rest of the world is set for a growth in infrastructure spending, copper prices may behave in a similar manner.

Source: Bloomberg; U.S. Global Investors. For illustrative purposes only.

As sentiment around China’s economy improves, and data from the manufacturing industry shows signs of a recovery, the outlook for copper could improve even further.

So, this may only be the beginning of copper’s surge in demand. As the energy transition begins to truly take hold, and China’s economy stabilises, demand should continue to grow. Supply will need to keep pace, putting pressure on copper miners to plug the gap.

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