Copper is the new gold.
That’s the point I made in a Wealth Wave article published on Dec. 12, 2019. Since then, copper is up a bit more than 20%. And copper miners, as tracked by the Global X Copper Miners ETF (NYSE: COPX), is up 36%. Both are leaving the S&P 500 in the dust.
If you didn’t listen to me in December, not to worry: This megatrend is only just starting. I gave you a bunch of forces driving copper higher in my previous article.
Now, I’ll give you three more reasons …
Reason 1: EV Demand
The world is in the middle of a massive switchover from internal combustion engine (ICE) vehicles to electric vehicles (EVs). The average ICE car contains 18 to 49 pounds of copper. Presently, EVs require about 183 pounds of copper — over three times more.
That’s for each car. The world also needs charging infrastructure to power up all those EVs. The guesstimate is that 20 million EV charging points will be required by 2030. And each one will require more than a cars’ worth of copper.
Sure, EV makers will become more efficient in their copper use. But there’s still a giant green wave of copper demand coming toward us.
And it’s not just EVs. Infrastructure buildouts, storage for alternative energy, 5G networks and more all contribute to outsized copper demand.
And speaking of demand …
Reason 2: Supply & Demand
The copper industry has suffered from years of underinvestment. Copper was simply too cheap to justify expanding existing mines or building new ones.
Now, producers are racing to catch up. But it can take a dozen years (or more) to bring a new copper resource into production.
Then add the pandemic into the mix. COVID-19 shut down production at all sorts of mines, including copper mines. Copper production was reduced by about 4% last year, causing existing stockpiles to shrink.
So, the supply/demand squeeze is already starting … even without taking increased demand into account. The industry consensus is that copper demand will rise by about 5% year-on-year in 2021. That will outpace supply, which could grow by 2.3% year-on-year — if nothing goes wrong.
Meanwhile, The Goldman Sachs Group, Inc. (NYSE: GS) forecasts that the largest deficit in 10 years in 2021 (327 kilotonnes) will be followed by an open-ended phase of deficits as peak copper supply (2023/24) and a record 10-year supply gap lurk on the horizon.
Reason 3: U.S. Dollar Weakness
Let’s get back to my original premise that copper is the new gold. Gold usually moves inversely to the U.S. dollar, though that relationship has unraveled a bit recently. Don’t worry, gold will find its footing again.
Copper, though, is moving in diametric opposition to the U.S. dollar. Here’s a chart of the price of copper over the past year against the U.S. Dollar Index:
The forecast for the U.S. dollar is more weakness, as Congress is expected to pass a huge spending bill and the Federal Reserve continues to run its money-printing presses at full speed to paper over the cracks. This bodes bullishly for copper.
So where will copper go? Estimates vary.
The metal recently traded at $8,400 per ton. Goldman Sachs gives a range of $9,200/$9,800/$10,500 per ton. Concord Resources Ltd., a leading trader, said copper could hit $12,000 in 18 months. Meanwhile, mega-investor Robert Friedland says that over the next decade, the price of copper will go “so high, you’ll need a telescope to see it.”
Whoever is right, the easiest path for copper is higher. COPX is still a great way to play it, though individual copper miners could do much, much better.
All the best,