Making copper – along with America – Great Again.
Copper price testing record highs set a decade ago, the credentials of the red metal are getting louder by the day. Investing in copper is a no-brainer given the powerful supply and demand influences. These forces have pushed the price of the red metal beyond $US4.11 ($5.20) a pound, just shy of the record 2011 peak of $US4.63/lb. As they transform to low-carbon electrified economies, western countries will become highly dependent on Peru and Chile, which produce 40% of the worlds copper. US motorists who remember queuing for gas during the 1970s Middle Eastern US embargoes will know what dependency means. In the case of oil, the US responded by not just sucking up to Saudi Arabia, but perfecting shale fracking and horizontal drilling that has rendered the gas-guzzling nation at least temporarily oil dependent. Theres no magic formula to increasing copper production. Despite ample exploration investment during the China commodities super cycle, only low-grade deposits were unearthed. Assuming 30% of vehicles are EVs by 2030, demand is likely to increase at a compound average of 6% annually. At that clip, the EV market would consume 12% of all primary copper. One EV contains more than 100 kilograms of copper about four times that of a conventional vehicle. They also use about two ounces of silver, but thats a story for another day. Petrol driven engines will be seen only in museums within a couple of decades and copper demand will soar by 15%. Copper miners face the invidious choice of going four kilometres high in the South American highlands. Its no wonder that Citi/Wood Mackenzie research points to a six million tonne supply deficit by 2030. While copper recycling will play a role in filling demand, it wont be enough to curtail further sharp price increases. Copper can only be replaced with alumina, which is less effective. In the short term, broker Cannacord Genuitys copper watchers expect further short-term strength for three reasons: the recent passing of President Bidens $US1.9 trillion stimulus package, supply disruption ahead of Chilean and Peruvian elections on April 11 and the Chinese Lunar New Year. The latter is relevant because internal travel in China was more subdued this year, which meant that manufacturers maintained production while commodity markets were closed. Hence, they need to re-enter the market to restock. No doubt at least some of the current trading activity is speculative. Still, its hard not to swallow the stronger for longer talk when most major car makers have pledged to banish internal combustion engines altogether (by 2035, in the case of General Motors). As is the case with most commodities, China is the biggest swing factor. The nation is the biggest copper consumer, but has few mines of its own. The state-owned utility China State Grid is the single biggest copper buyer in the world, using up to 2.8 million tonnes a year. If thats enough, the agency plans to increase its investment in infrastructure by more than 50% to service its 1.1 billion customers. At the same time, outsourced fabrication is returning to US shores which means making copper along with America great again. As a renewable investment play, copper is an attractive alternative to the obvious channels such as the $US685 billion market cap Tesla. If Elon Musk revs up plans to produce 20 million vehicles a year, that would account for 1.8 million tonnes of copper in the context of current global consumption of 22 million tonnes. BHP and Rio Tinto are by the far the biggest, courtesy of their jointly owned Escondida project. The Resolution joint venture has just received a setback in Arizona, with the US Government reversing a land swap deal crucial to developing a huge underground copper mine. The project had been resisted by Native American landholders. Arizona hosted copper mining for more than a century before being surpassed by Chile. The old glory days might beckon again. https://switzer.com.au/the-experts/tim-boreham/the-copper-rush/