Attention, retail investors! We’re going to hit a little bit of a chat on copper. Firstly a caveat: I am so blindingly bullish on copper it’s not even funny anymore. I will always repeat the chat I had with head of Commodities Strategy at WBC, Rob Rennie when I mentioned that EVs require 3x as much copper to run that ICE vehicles. He corrected me: “actually if you take charging stations and moving power from one place to the stations it’s more like 5x as much copper needed. That’s a lot, obviously.

And we’re not even close to digging enough of it out of the ground. We’re not even close to finding the places where it is to think about digging it out of the ground;

But the fact is that

" Copper supply will shrink without investment in new production,

and the base case copper mine supply is estimated to decrease 36% by 2040."

- Wood Mackenzie, Global copper investment horizon outlook Q4 2022

So here comes another question, "How much copper is needed for the 'transition to sustainable energy' "?(Wood Mackenzie, Global copper investment horizon outlook Q4 2022) According to the Net Zero scenario, "60Mt of the annual copper supply is needed by 2040 to help deliver Net Zero Emissions."

But long term issues are rarely drivers for short term price moves. And copper has definitely made a shift, even in the face of slowing global growth (the reason for oil’s recent declines) 

Source: TradingView

Copper futures have definitely broken out of a downtrend in the short term.

Also something to note. People who use the term “Dr Copper” unironically need to be looked at funny. It doesn’t move for the reasons it used to. 

As usual we look to China to provide these answers. We’ve seen over recent months an increasing use of Critical Minerals to provide defense protection for countries’ and their allies but also as a geopolitical bargaining chip. 

Although it’s been kept off the lists for years, finally in August 2023 copper was added to the critical minerals list but the US Department of Energy. Joining China, India, Japan and more. South Australia even listed it as critical recently.

Earlier this month, the Chinese Ministry of Commerce asked exporters to report transactions in REMs and REOs. That’s news in itself, however also added to a list of additional reporting requirements were crude oil, iron ore, potash and our dear friend copper.

So, the market may be adding some extra risk premium to the price of copper in the expectation supply is squeezed as part of the critical minerals battle going on around the world.

Also, China’s recent pledge of support by the Central bank to the struggling property sector is more than enough to give the metal a strong tailwind. 

Source: South China Morning Post

China is predicted to need more in the short term with property not falling off a cliff and the world still needs copper with the switch to renewables now on an irreversible path.

We continue to advise investors to add on dips with a long term view.

All the best,

James