A Second Chance To Profit From The Copper Super-Cycle
Copper investors are cheering some bullish comments from Citigroup a few days ago. The upbeat outlook from their commodities research chief came with an eye-opening price target: $15,000 per metric ton.
First, let’s take a step back.
Copper has been sluggish for most of the year. After peaking above $9,400 back in January, spot prices on the London Metal Exchange have dipped about 11% to a recent $8,360. Producers, from the smallest startups to global giants like Rio Tinto (NYSE: RIO), have felt the pinch.
Source: London Metals Exchange
The China Factor
It’s well-known that China consumes more than half (about 55%) of the world’s copper supply. It’s also the world’s third-largest producer, thanks to state-owned enterprises such as Jiangxi. But the ravenous country can’t meet its own needs internally, so industrial hubs like Shanghai import mountains of the versatile red metal each month to feed hungry factories – exerting considerable sway over global prices.
But China’s property and manufacturing industries (two key copper end markets) haven’t yet returned to full pre-Covid strength. So, the appetite for refined imports has skidded to a four-year low, dropping about 12% through the first half of 2023. That explains much of the downward pressure on global prices.
There is a structural transition underway that has gone overlooked. China is rapidly building out its smelting and refining capacity to become more self-sufficient. So, while refined imports are down, its demand for raw copper concentrates has never been stronger. According to Reuters, these raw material imports totaled 13.4 million tons through the year’s first half, a new record.
Meanwhile, copper stockpiles are relatively depleted relative to historic norms. As of August 17, just 110,000 tons of inventory is sitting in Chinese warehouses. That’s a 53% decline from a year ago – equivalent to a mere three-day supply. Bullish traders are also closely watching for the next round of government stimulus measures, which could strain supplies even quicker.
The Green Revolution Needs Copper…
Yet, none of this was the real motivation behind Citi’s optimistic report. The bigger catalyst is the powerful and sustained transition to greener energy, which simply isn’t possible without copper. Wind turbines, solar panels, and electric vehicle batteries are all loaded with it. Adding one new megawatt of renewable power takes 2 to 5 tons of the metal.
As I’ve said before, you can’t decarbonize without copper.
This new incremental demand is on top of old-school uses, such as the miles of copper wiring in your home. Annual consumption is expected to double from 25 million tons to 50 million by 2035. The soft global economy has stalled momentum, but only temporarily.
In the words of Citi director Max Layton, “Copper’s eventual bull run is likely to make oil’s famous 2008 rally look like child’s play.”
It’s no coincidence that he chose that comparison since copper is widely considered the new “green” oil. For the record, benchmark WTI crude prices spiked to $140 per barrel in 2008, nearly tripling from $50 less than a year before.
Other traders share a similar outlook. Not long ago, Goldman Sachs predicted that “major restocking” in China could propel prices to $11,000 per ton in the short term and $15,000 over the long haul. Bank of America threw out a potential price of $20,000 by 2025.
Action to Take
I’m not going to bury you beneath a bunch of facts and figures. The long-term supply/demand imbalance hasn’t changed much since I first discussed the likelihood of a copper super-cycle here.
To profit from this trend, you could look to a mega-producer like Rio or Southern Copper (Nasdaq: SCCO). But over at Takeover Trader, I recommended a small-cap copper miner with much more upside…
That’s because it’s sitting on one of the world’s largest untapped deposits. While core samples and geophysical data show the system has attractive copper intervals at depths of up to half a mile, there are thick veins up to 100 feet long protruding right on the surface. Conservative mineral estimates suggest this bountiful inventory is valued at just 4 cents per pound.
With experienced leadership at the helm, it’s on track to become a large-scale backyard supplier of critical copper supplies, assuming these assets don’t first catch the eye of a potential acquirer.
To learn more about this pick — and get your hands on our latest research over at Takeover Trader — go here now.