Copper has hit a ten-year high, but this could just be the start of a huge bull market

The price of copper is at its highest for ten years. But supply constraints and a massive rise in demand mean it’s not going to stop there, says Dominic Frisby.

Mining analyst Mark Turner, who writes the IKN Weekly, a newsletter focused on mining in South America, recently told his subscribers in no uncertain terms to cut their exposure to Peru.

“Sell Peru”, he said. It is, as far as mining investment is concerned, “off the map”. In fact, he went as far as to recommend shorting mining companies with significant exposure to Peru.

The reason? “Resource nationalism is coming to South America.”

Turner knows what he’s talking about. He’s at the coalface. He lives in Lima.

Politics could hit the supply of copper

Peru’s elections are a drawn-out process and the deciding vote comes in June. Socialist Pedro Castillo is the front runner and he is promising supertaxes of as much as 70% on mining profits in a bid to stop foreign firms “looting”, as he puts it, the country’s mining wealth.

The consequences are predictable. International companies will halt expenditure on both exploration and development. Why would they do anything else, if there is no reward for them? This means job losses for locals. What’s more, companies will reduce production, so as to leave metal in the ground until a new, more mining-friendly president comes to power. Which means diminished supply.

Peru is the world’s second largest producer, after Chile. It produced  2.2 million tonnes of copper last year, roughly 12% of annual supply. But it doesn’t look like it is going to be the world’s second largest producer for much longer.

Meanwhile, Reuters reports that Chile, which produced 5.7 million tonnes, “saw output of the red metal fall for the tenth consecutive month in March, marking a modest but continual slide in production that began shortly after the coronavirus pandemic struck the country.” Year on year production has fallen by just over 2%.

The world’s next largest producer is China, on roughly 1.6 million tonnes. Yet China is a net importer. That’s an understatement: it’s on a copper buying spree. It imported over a million tonnes more refined copper in 2020 than in 2019, and rumours of state stockpiling abound. China’s internal production can’t even meet its own internal demand, let alone what it needs for its exports’ manufacture. Between 2005 and 2020 China invested over $56bn securing overseas copper assets.

China alone accounts for over half of world copper demand, followed by Europe, then the US and Russia.

The “green revolution” will consume a lot of copper

Copper is in a runaway bull market. Demand is everywhere. Back in 2017 the World Bank was forecasting demand increases of at least 50% over the next 20 years. If the world moves towards a low-carbon energy future, then demand could rise tenfold by 2050, it claimed. Tenfold! The cause, irony of ironies, is the green energy revolution. 

In terms of metal demand, this revolution is anything but green. 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, reports the Baker Institute Center for Energy Studies in Forbes, than their conventional counterparts.

Every 1,000 battery electric vehicles (BEVs) require 83 tonnes of copper – three times the amount needed by old-school motor cars. Wind turbines require 3.6 tonnes of copper per megawatt (MW) of output and photovoltaic cells four to five tonnes per MW.

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 multiplicity of other applications that require copper.

And one forgets there are other countries in the world that use copper. It’s not just China.

All this adds up to one thing: a copper bull market

Is the green energy revolution narrative suddenly going to go away? I doubt it very much – views are too entrenched. It might be that an extraordinarily high copper price will change the narrative and the case for fossil fuels will get stronger. It might be that an overwhelming case is made that, because of the extraordinary metal demand and the fossil fuels required to meet that demand, green energy is not quite that green after all. I can see the argument being made – it is already being made – but I can’t see it catching on. In other words, copper demand is not going away.

It all looks very bullish. This is a bull market of the secular variety, it seems. 

Copper slipped below $2/lb in March last year. For the chartists out there, it formed a wonderful five-year double bottom with the lows of early 2016. It’s since made its way steadily up and today sits around $4.50/lb. It closed April at the exact price, almost to the penny, that it closed ten years earlier, at the peak of its last bull market, in April 2011.  

It could be that we form a multi-year double top, and that it pulls back from this incredibly historically sensitive price point, after what has been a bonanza year. 

But the momentum is up. Demand is escalating. Supply looks like it is coming under pressure. And once it breaks above its 2011 highs, what can I say? Look out above.


Why are energy prices going up so much?

Why are energy prices going up so much?

UK energy prices are going through the roof, with electricity the most expensive in Europe and gas at its highest for 13 years. Saloni Sardana explain…
16 Sep 2021
What really causes inflation? Here’s what prices since 1970 tell us

What really causes inflation? Here’s what prices since 1970 tell us

As UK inflation hits 3.2%, Dominic Frisby compares the cost of living 50 years ago with that of today, and explains how debt drives prices higher.
15 Sep 2021
Should you defer your pension and stay in work?

Should you defer your pension and stay in work?

The pros and cons of deferring your pension and staying in employment beyond 66 are finely balanced.
15 Sep 2021
I wish I knew what a marginal tax rate was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what a marginal tax rate was, but I’m too embarrassed to ask

Your marginal tax rate is simply the tax rate you pay on each extra pound of income you earn. Here's how that works.
14 Sep 2021

Most Popular

Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
Should investors be worried about stagflation?
US Economy

Should investors be worried about stagflation?

The latest US employment data has raised the ugly spectre of “stagflation” – weak growth and high inflation. John Stepek looks at what’s going on and …
6 Sep 2021
How you can profit from the power of the grey pound
Share tips

How you can profit from the power of the grey pound

Higher life expectancy and surging asset prices have proved a boon for the baby-boomer generation, which has accumulated vast wealth. Younger generati…
10 Sep 2021