I thought I’d cover copper today. It’s been a while and it’s kind of an important
metal in the context of the global economy. By
kind of I mean probably the most important. Dr Copper and all that.
Despite copper’s importance,
precious metals tend to get more coverage. They are more glamorous after all.
But we do not concern ourselves with
glamour or shizzle here on these pages. We get our hands dirty at the heart of industry.
Or something like that…
So …
Iron and aluminium are the most-used industrial metals in the world.
Then comes copper. Its main use is in wiring, which accounts for about 60% of demand.
Piping and roofing make up another 20%, machinery about 10%, and “other” the final 10%.
Overall copper demand is 65% electrical, 25% industrial and 10% transportation.
Its many uses all over the economy – homebuilding, construction, manufacturing,
power generation, electronics and transportation – mean it has proven a barometer of economic
health. Hence the nickname, “Dr Copper” – the metal with a PhD in economics.
The world’s largest copper producer is Chile (5.6 million tonnes last year). Then
Peru (2.3m tonnes) and China (1.9 m tonnes), followed by the Democratic Republic of Congo
and the US. Between them, those five countries account for about 60% of global production.
Supply was hit by Covid – many mines had to suspend operations – and there are also fears
of falling investment, higher taxes and more resource nationalism in both Chile and Peru,
where left-wing governments have been elected. So far, fear is worse than reality.
China, despite being the world’s third-largest producer, is a net importer
and the world’s largest consumer. It accounts for over half of world copper demand,
followed by Europe, then the US and Russia.
Annual imports of copper concentrate to China hit a historic high last year, though, as Andy Home
reports for Reuters, “refined copper imports fell by 25% relative to 2020 to 3.3 million tonnes, but
the previous year had shattered the record books”. Last year's tally was up on 2019.
China’s internal production can’t meet its own internal demand,
let alone what it needs for its exports’
manufacture. Between 2005 and 2020 China spent more than $56bn to secure overseas copper assets.
One forgets there are other countries in the world that use copper. It’s not just
China. And the big driver of copper demand will be the Great Reset, “Net Zero” (or Net Stupid
depending on your point of view) and the world’s mission to get to a low-carbon energy future.
There is an immense, underappreciated materials
intensity to green energy consumption in its many forms, of which copper is a major constituent.
Alternative energy systems are on average five times more copper intensive than their
conventional counterparts, reports the Baker Institute Center for Energy Studies in Forbes.
Battery electric vehicles (BEVs) require three times as much copper as an old-school vehicle.
For perspective, 30,000 BEVs can consume as much copper as a skyscraper. For the global passenger
vehicle fleet to be one-third BEV would mean 300 million BEVs, or 20 million tonnes of copper.
That figure is roughly equivalent to annual global copper demand. Never mind all the plumbing,
wiring, weatherproofing, machinery, electricals,
electronics and plethora of other applications that require copper.
Wind turbines require 3.6 tonnes of copper per megawatt (MW) of output,
and photovoltaic cells four to five tonnes per MW.
Here’s a chart of copper over the past five years, so you can see the price action.
After the boom of the noughties, it spent the next nine years meandering roughly in the range
of $2.50/lb to $3.20. Like pretty much every other asset, it collapsed like a stone in 2020 to $2/lb,
then rebounded with a tech-stock-like elastic spring all the way to $4.80.
It has spent the past year
trading in an ever-tighter range around the $4.20-4.40/lb levels.
Notice the lows are getting higher and the highs are getting lower. The noose is getting tighter.
Sooner or later, probably some time this year, it is going to break out of that range
and thrust. The question as ever is: will that thrust be up or down?
I think it’s going to be up. But from the point of view of risk, if it goes below
support at $4/lb (or just underneath), I’ll eat some humble pie and accept that I’m wrong.
How to invest in copper There are plenty of ways to get exposure to the
copper price which cater for all risk appetites – from tiny-cap explorers to mining giants; from
levered futures, CFDs and spreadbets to going down the scrapyard and buying the metal itself.
Starting with ways to play the copper price, one low-geared method is to buy the Copper ETF (LSE:
COPA). If you want something a bit more racy, then CFDs and spreadbets are the way to go (high risk
as ever, probably not advisable, definitely not if you don’t already know what you’re doing).
Then there are the miners. If you don’t want individual company risk,
there is the Global X copper miners ETF, the most liquid version of which is listed in New
York (NYSE:COPX) but there are also “subsidiaries” in London, denominated in dollars (LSE:COPX) and
sterling (LSE:COPG). The latter is probably the best way to avoid broker forex charges.
As for individual companies, London has no shortage of options. There are the giants,
including my perennial favourite BHP Group (LSE:BLT), plus Glencore (LSE:GLEN), Anglo
American (LSE:AAL), Rio Tinto (LSE:RIO), and Antofagasta (LSE:ANTO). US-listed Freeport-McMoran
(NYSE:FCX), the world's second-largest producer (after Chilean state-owned Codelco),
also deserves a mention.
The above-mentioned London giants, Antofagasta aside, are not really pure plays (though if
copper rises, most other metallic boats float). More focused copper plays include
Atalaya Mining (LSE: ATYM), primarily a European copper play and Central Asia Metals (LSE:CAML).
There are plenty of smallcaps to spice up your dinner, or give you indigestion. I’ll
leave those to you to unearth. Just remember the golden rule about mining exploration:
don’t believe anything anyone says, especially the CEO.
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I’ll be back with another video very soon.
And look out for my Substack blog thing which I'll be starting very soon as well.
In the meantime, cheerio