Commodities are selling off a little as peace talks between Russia and Ukraine progress.
The speculative mania seems to be unwinding.
Grains are down, oil is down – though daily swings of $10 a barrel now seem to be the
norm – precious metals, palladium especially, are down.
War or not, most commodities will rise again – there was an ongoing shortage before Vladimir
Putin went all Napoleon.
But excess must be purged.
However, of note is that one industrial metal is hardly down at all, which suggests that
that particular bull market has a lot further to go.
And that is why today we consider copper…
Russia is the world’s seventh-largest producer of copper.
It produces about 4% of annual supply (about one million tonnes a year), and sells most
of that copper to China (with some into Europe).
Iron, steel and manganese make up Ukraine’s main metallic production – it is not a big
player on the copper stage.
The overall consensus was that the war and sanctions on Russia would not have as big
an impact on the copper price as on other commodities – and that has so far proved
the case.
The main protagonists in the copper story lie far away – in China, Africa and the
Americas.
I don’t know how many times I’ve uttered this sentence, or at least a variation of
it, but here I find myself writing it again: China is the world’s largest consumer of
copper.
That’s despite it also being the world’s third-largest producer.
It is a net importer, accounting for 54% world copper demand.
Europe is the next biggest user, at around 15% of demand.
Followed by the Americas, the US especially, which account for another 11% of demand.
Total annual demand is somewhere between 25 and 28 million tonnes (depending on whose
research you follow).
Copper costs around $10,000 per tonne, so this is a $250bn-plus market.
Correct me if I’ve got my maths wrong.
(I’m sure you won’t hesitate).
The country with the biggest reserves and by far and away the biggest producer is Chile.
Fears of resource nationalisation there with its new-ish left-leaning government have so
far proved unfounded.
It produces almost six million tonnes, or 28% of annual global supply.
Next is its neighbour Peru (2,200 tonnes, 12% of global supply); China (1,700 tonnes,
8%); the Democratic Republic of Congo (1,300 tonnes, 7%); and the US (1,200 tonnes, 5%).
Copper is used just about everywhere: homebuilding, construction, manufacturing, power generation,
electronics and transportation.
Which is why demand is often seen as a barometer of economic health.
Overall demand is split roughly 65% electrical, 25% industrial and 10% transportation.
China’s inventories are at their lowest levels in four years (since before the pandemic),
as are London Metal Exchange (LME) inventories, as is global visible inventory generally,
suggesting strong support for current prices.
What does the copper chart tell us?
So to the copper price.
It had a huge run up in the bull market of the 2000s.
It collapsed in 2008, rallied again to a peak in 2011 (around $4.60/lb), and then went through
nine years of bear market, during which it lost more than 50%.
It successfully retested its lows around $2/lb in 2016 and 2020.
It then went ballistic in the post corona-rebound, reaching new highs in 2021, since when it
has been consolidating around the new highs.
Here is 20 years of copper:
And zooming in, here is three years of copper, so you can see the consolidation of the last
year, steadily creeping higher.
The Dominic Frisby house call remains: “own copper”.
It wants to go higher.
Never mind China, if we are to have our Green Revolution, we are going to require a lot
more of it.
So how to invest?
There is no shortage of methods, depending on your risk appetite – from futures to
exchange-traded funds (ETFs) to spread bets to stocks and shares.
You can even go down the scrapyard and buy the metal itself.
That is what one of my brothers-in-law used to do.
But he is mental.
I’ll put a link in the comments and on the screen - but if you go over to my Substack
I’ll list out all the best ways to invest in copper, including some suggestions of large
caps companies
If you want to make lots of money, small caps will give you more gearing
There are plenty of smallcaps and midcaps to spice up your dinner, or give you indigestion,
depending on how much you consume.
I’ll leave those to you to unearth – Canada and Australia probably have the most listed,
although there are also plenty on London’s Aim.
Just remember what Mark Twain said: “a mine is a hole in the ground with a liar standing
next to it”.
Or words to that effect.
Thanks for watching.
I’ll be back with another video very soon.
Please subscribe to the channel or to my Substack.
IN the meantime Cheerio