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Copper gains traction as energy transition takes centrestage

By Rhea Nath
4 minute read

Investors are dialling up their bets on the commodity, which has seen prices surge this year amid supply risks and escalating demand.

Following the record highs of February 2022, it appears copper is making a resurgence, even as commodities continue to see a high level of divergence in performance.

According to JP Morgan Asset Management, while iron ore is down more than 18 per cent year-to-date, gold and copper are both up 16.3 per cent.

This divergence is likely driven by underlying demand fundamentals, it said, and in the case of copper, global demand growth is being driven by robust energy transition demand.

“Other than gold, global copper demand growth continues to accelerate due to robust energy transition demand, particularly grid, electric vehicles (EV), and renewables. This has helped offset the weak ‘traditional’ end uses, such as construction, manufacturing, and appliances in developed economies like the US and Europe,” said Marcella Chow, global market strategist.

Renewables and EVs added about 1.2 megatons to global copper demand in 2023.

“Looking ahead, EV and renewables, coupled with various additional applications including data centres to support the ongoing artificial intelligence (AI) development and EV charging stations, suggest copper demand for broader network infrastructure will further accelerate in the next few years, potentially offsetting the still subdued weakness in the Chinese real estate sector, while further attracting thematic investors to energy transition and AI to copper and copper miners,” Chow said.

Last month, two of the funds offering exposure to copper – namely the Global X Copper Miners ETF and the Betashares Energy Transition Metals ETF, which provides exposure to global producers of copper, lithium, nickel, cobalt, silver and rare earth elements – were among the top-performing ETFs. They returned 10.5 per cent and 10.4 per cent, respectively.

Betashares investment strategist Tom Wickenden said there’s been “no doubt” that copper and the other future-facing metals have been in hot demand.

“Globally we’ve seen a land grab by the large, diversified miners seeking to diversify their portfolio away from more traditional commodities. For example, BHP recently lobbed a bid for Anglo American which, although initially rejected, is likely to continue to play out for the foreseeable future with further M&A expected in the sector,” he told InvestorDaily.

Additionally, production of many of these commodities is structurally constrained, and is likely to remain low in the near term. For markets, this is likely to translate to further upward pressures on prices.

Marc Jocum, Global X ETFs’ product and investment strategist, observed that copper prices have surged 10 per cent year-to-date, and 15 per cent since mid-February.

Meanwhile, the World Bank’s projections earlier this month indicate its metal price index will hold steady in 2024–25 while copper prices are forecast to increase “modestly” by 5 per cent.

“Institutional investors have dialled up their bullish bets on copper, as reflected in the increasing ‘longs’ in the copper futures market,” Jocum said.

Like Wickenden, he highlighted escalating supply fears as production downgrades came in from some of the major copper miners like Anglo American and Rio Tinto.

“These downgrades are making supply fears worse, given underinvestment in discovery the past 20 years, and lowering ore grades at legacy mines,” Jocum said.

The investment executive added these supply challenges come forth alongside rising excitement around artificial intelligence, which requires huge amounts of energy from data centres, in turn bringing more attention to copper.

Over the next decade, the International Copper Association Australia forecasts copper consumption for data centres to jump from 197,000 tonnes in 2020 to 238,000 tonnes in 2030, and eventually hit some 293,000 tonnes in 2040.

For Fidelity investment director Tom Stevenson, the growing demand alongside limited supply of copper is setting the stage for a price super cycle that comes around every 30 years or so in the commodities world.

“It’s what happened after the Second World War, when lack of investment during the depression gave way to soaring demand during the conflict and afterwards as Germany and Japan were rebuilt. In the 1960s, the catalyst was US President Lyndon Johnson’s Great Society spending splurge, and in the early years of this century, it was China’s mass migration from the countryside to its cities,” he said.

He predicted further gains ahead, even as the price of copper sits at a two-year high of nearly US$10,000 a tonne.

“The history of the copper price illustrates how commodity prices tend to move. They do nothing for years, boring investors into submission, and then suddenly take off when the stars are aligned,” he said.

“In the case of copper, the price was higher in the mid-1970s than it was in 2003. But within three years it had quadrupled. Since then, it has moved sideways for nearly another 20 years, albeit with big swings along the way, and growing numbers of investors think it’s time may have come again.”