Why copper prices are at all-time highs

This article could be devoted to the critical role that copper has played in civilisation’s development since its discovery in the Neolithic period nearly 10,000 years ago. But suffice it to say that copper, more than any other commodity, represents progress. When copper is in demand, it indicates that industries and economies are moving ahead.

Dr Copper is often known for its ability to predict future economic activity. At the time of writing copper prices reached all-time highs at $US10,460 per tonnes (US$4.76/lb). The current copper prices have rebounded from the 3-year lows they reached in the middle of the COVID-19-induced recession in 2020. Are these current prices just a post-COVID phenomenon? Or is there more to them? This article will discuss the forces at work, our outlook, and how we are positioning ourselves to maximize the electric metal’s power.

Why are prices rising?

Scrap copper prices in sydney is affected by a number of factors, but it’s easy to understand how they are related.

Factors that influence supply:

• COVID-19 dislocation As we all know, the COVID-19 pandemic caused widespread lockdowns that led to a decline in global copper supply at every point in the supply chain. Supply chains can return to pre-pandemic levels as the COVID-19 crisis subsides in some areas.
• No new discoveries: According to S&P it takes 20 years for production to begin after discovery.
• Diminishing ore quality:Copper is limited in supply and has a declining quality. To extract the same amount, more rock must be mined and processed. Chile is the largest copper producer in the world. However, the average copper ore grade has declined by 30% since 2005. 3 Miners cannot continue to increase production. There is a limit on how much copper can be mined each year.
• Scrap supplies While scrap metal supplies of copper can be a viable and significant source of supply, historically scrap takes time to react to market dynamics. Considering COVID-19-related logistical constraints, shortages are likely in the near term, further strengthening copper prices.

Factors that drive demand:

• After COVID-19 activity: The return to normal activity, and making up for lost time with the COVID-19 lockdowns, are both strong but short-term effects. The demand for copper in building construction is one the biggest markets, despite megatrends like mass urbanisation. Water pipes, electric wiring. While COVID lockdowns may slow down a trend, it can’t stop it entirely. This mega trend is not the only reason governments around the globe have initiated unprecedented levels of fiscal stimulation, which has led to increased economic activity, and consequently, copper demand.
• Clean energy transformation: The US climate summit saw a number countries declare net zero emission targets and the US sign the Paris Agreement. China’s President Xi has also committed to reduce coal consumption beginning in 2026, and reiterated his country’s 2060 target for carbon neutrality. These two largest economies in the world reminded us of their common goal of promoting renewable energy and reducing carbon emissions. Decarbonisation is impossible without copper. This means that copper demand in areas related to clean energy will continue to rise strongly over the coming years. According to the International Energy Agency (IAEA), around 45% of copper demand will come from clean energy technologies by 2040 . This means that production must increase rapidly to meet the demand. This will likely cause copper prices to drop against some of the above supply factors.

Can the price go up?

Copper prices will be affected by the extent of inventory reductions in the near term. China’s speculative positioning is quite extended. Due to high prices, China could slow down its purchases and moderate consumption growth may cause a price correction.

Copper prices would suffer if scrap supply can respond adequately to prevent major refine inventory drawdowns. A bull case would have more success than expected with Chinese policies, Fed yield curve control, and European growth surprises. However, a bear case would see global support for policy waning and a sharp decline in growth.

Do copper stocks reflect the rising copper price?

We hold five copper stocks: Ivanhoe Mines (Freeport McMoRan), Solaris, Anglo American and Solaris. The chart below shows the copper price relative the stock prices of these companies. It is a 100 percent increase chart since March 2020’s COVID-19 crisis.

Copper equities, in our opinion, are the best way to get copper exposure. Commodity equities have historically outperformed their underlying commodity counterparts due to their extra growth, value creation potential, and an equity premium to harvest.

Chart 1: Growth of US$100

There are attractive opportunities for copper producers, developers, and explorers. Although there will be some volatility in copper prices and share price fluctuations, the long-term trend is driven by decarbonisation of global economies. Large sources of new supply are slow, costly, and difficult to get to the market.

The Anthropocene Epoch describes the moment in Earth’s geologic time when human activity has had a significant impact. Copper is an important part of the solution to this problem.