How to invest in copper

I wish I had a bitcoin for every research report that has crossed my desk in the last three years about the looming copper-supply crisis. I’d be richer than Satoshi Nakamoto, the person thought to have developed bitcoin. Well, maybe not quite. But you get my point. Nevertheless, there is a chance that the narrative is now becoming reality. Bank of America (BoA) has just released a research report entitled The copper supply crisis is here. Meanwhile, the copper price is close to all-time highs and looks ready to break through them. In this piece I shall look at copper’s long-term price action, give you a quick overview of the market, examine the supply and demand situation and consider various ways to play the red metal.

Rise and fall of copper prices

The $4.20-$4.60 per pound (lb) area has been a key resistance level on the chart of the copper price since 2008. Prices broke above them in the early 2020s and after a nasty correction are retesting those levels now. 

I see parallels with the $1.45-$1.50 level, which proved a barrier for 25 years, from 1980 to 2005. Once copper broke through, it went north of $4 in 2006. There have been bull and bear markets in the 18 years since, but nothing like that move from 2001 to 2006. 

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The question is, has this rally got legs? Analysts at Goldman Sachs think so: higher prices are the only way of encouraging more metal to a market that is short of supply. They have put a target of $15,000/ tonne ($6.75/lb) – implying a 50% rise from current prices – for next year. Here’s what they had to say (be warned, their prose is clunky): “The path to our average $15,000/t price for next year reflects the necessary price level needed to generate requisite scrap and substitution effects to limit the deficit to a level which metal stocks in the system could solve”. 

Taking the last three years into consideration, prices surged and then collapsed following the invasion of Ukraine. Copper has been making higher lows since 2022, which is a good thing. Take note: copper collapses often seem to start in May. Going back to the 19th century, when you could buy a pound of copper for ten American cents, the red metal traded in a stable range from 1885 to 1929, and then crashed along with everything else. From 1933 it entered a bull market that lasted until 1975, with a few wobbles along the way. 

Copper then range-traded for 30 years before the next break-out in 2005. Since 2005 it’s been in a range. We come back to that early question: are we about to break out again, or are we just at the top of the range?

Global demand to invest in copper

Many argue that copper is the first metal human beings used (there is a copper pendant that dates back to 8,700BC). I think humans’ first metal was gold, but we can talk about that another time. Today copper is the third most-used metal in the world, after iron and aluminium. Its main use is in wiring, which accounts for about 60% of demand. Piping and roofing make up another 20%, machinery 10%, and other uses the final 10%. Around 65% of overall demand for copper is accounted for by electrical equipment, 25% is used in industry and 10% in the transportation sector. The big growth area today is in so-called green technology and the electrification of everything. 

Because copper has so many uses, it has become a barometer of economic health, earning the nickname “Dr Copper – the metal with a PhD in economics”. 

The country with the largest reserves and by far and away the biggest producer is Chile, producing almost six million tonnes annually, or 28% of annual global supply. Chile is followed by Peru (12% of global supply); China (1,700 tonnes, 8%); the Democratic Republic of Congo (1,300 tonnes, 7%); and the US (1,200 tonnes, 5%). Between them, those five nations account for 60% of global supply. 

China is the world’s largest consumer of copper and, despite also being the world’s third-largest producer, is a net importer. About 54% of global demand for copper stems from China. That’s a quite astonishing number, and it explains why copper analysts obsess over the sheer scale of China’s demand for the red metal. China’s internal production can’t meet its own internal demand, let alone what it needs for its exports’ manufacture, and between 2005 and 2020 it spent more than $56bn securing overseas copper assets. 

Europe is the next biggest user, at around 15% of demand, followed by the Americas, especially the US, which accounts for another 11%. Total annual demand is around 28 million tonnes. Copper costs around $10,000 per tonne, so this is a $280bn market.

Opportunity to invest in copper amid soaring supply deficit

Bank of America describes a “deceleration in mine supply”, while Goldman Sachs has increased its deficit forecast, estimating “a 454kt [kilotonne] metal deficit for this year and a 467kt metal deficit for 2025”. “With peak supply now fixed on the horizon mid-decade... the question has now become how high will copper prices have to trade to maintain market function.” BoA notes that in China “apparent demand (refined production plus net imports, minus inventory changes) has rallied by 23% year on year in 2024... partly because spending on the green economy has held up”. China’s demand for housing, which accounts for about a third of its copper use, does seem to be on the slide, but this has been more than offset by green spending, which is putting upward pressure on the demand for copper, even with spending on electric vehicles (EVs) declining a little. (Newer EVs don’t use as much copper as previous models, even if an EV still needs more than a petrol or diesel vehicle.) 

Beyond China and global electrification, other sectors worldwide have been adding to consumption, especially data centres. The rapid growth of artificial intelligence (AI) and cryptocurrencies implies increased need or copper, even if the jury is still out on whether fibre or copper cables will ultimately prevail in the cabling within the data centres.

Invest in copper: best copper stocks to buy

I have long advocated owning copper. There is no shortage of methods, depending on your appetite for risk – from futures and exchange-traded funds (ETFs) to spread-bets and equities. Simply to play the copper price, without taking on risk relating to individual firms or mining, there is the WisdomTree Copper ETF (LSE: COPA), but this will not make you rich. In fact, it’s a very dull way of playing this market. Then there are the miners. If you don’t want individual company risk, go for the Global X Copper Miners ETF (LSE: COPG). 

London has no shortage of options when it comes to large-cap mining companies. There are the giants: BHP Group (LSE: BHP), Glencore (LSE: GLEN), Anglo American (LSE: AAL), Rio Tinto (LSE: RIO), and Antofagasta (LSE: ANTO). US-listed FreeportMcMoran (NYSE: FCX), the world’s second-largest producer (after Chilean state-owned Codelco) is a purer play than most of the mining giants, Antofagasta aside. 

I own a large chunk of BHP in my own portfolio. It is the easiest way to secure broad base-metal exposure, and it pays a 5% yield. Glencore pays about 2% and I’ve been very tempted by it for a long time, but never quite got round to it. While I am not a seller here, I’m very wary about copper’s tendency to sell off in May, especially after the run up we have had. I’m bullish over a one- to three-year time frame, but cautious in the short term. If I’m wrong and Bank of America is right, and copper breaks out, you want to have some exposure already booked in to save you having to chase prices higher. It may be 2004-2006 all over again, and copper is about to re-rate.

Is now the time to invest in junior copper stocks?

Now we come to the junior end of the market, where the juicy gains – and losses – are to be had. If you are feeling sufficiently daring, there are plenty of exploration and development plays. One to consider is Arizona Sonoran Copper (Toronto: ASCU). 

This is not one I own, but it was recommended to me by veteran geologist Brent Cook, who used to work with renowned precious-metals investor Rick Rule. Cook thinks it is the real deal. Real deal or not, its share price has been sliding since its flotation in 2021 at C$2.35 (137p) a share. At the current price of C$1.36 (79p), it has a market value of almost C$150m (£87.4m). 

ASCU is putting the previously fruitful Cactus Mine in Arizona back into production. It is in a prolific copper-mining region, has a multibillion-pound mineral resource, and requires relatively little capital expenditure. The mine should last for 18 years and generate more than $1bn of cash flow, assuming current copper prices. 

It contains an estimated three billion pounds of copper. Rio Tinto, via its Nuton subsidiary, owns 7%. The location of the mine, the economics and the scale all make it attractive. The problem with these development plays is that progress is so slow and vast amounts of capital get burnt. There is always a chance of a takeover, I suppose. 

Amerigo Resources (Toronto: ARG) has done rather better. It produces copper from the waste material of Chilean state miner Codelco’s enormous underground El Teniente mine. (El Teniente began producing in 1905 and has a predicted mine life up to 2082, so we do not need to worry that the copper will run out.) Amerigo has a market value of C$290m (£169m) and pays an annual yield close to 7%. I don’t own this one either – I wish I did. If the copper price goes up, so do its profits. 

QCCU Copper (TSX Venture Exchange: QCCU), on the other hand, I do own, as its small market capitalisation, C$22m (£12.8m), provides ample scope for growth. That said, it appears to have gone to sleep. 

QCCU is developing a large copper project in Quebec, “the highest grade open-pit mine in Canada”. I thought its mineral reserve update would be a big catalyst for the stock. But decent though it was (two billion pounds plus of copper equivalent; it has some gold and silver too), the shares did very little. We now have to wait for a preliminary economic assessment and feasibility studies to come out later in the year. It has some $7m in cash so it shouldn’t have to dilute its shareholders too soon. 

But on a value basis, compared with ASCU, for example, you have to say it’s more compelling. Resources of this size and quality in safe jurisdictions such as Quebec don’t come around very often. Accessibility and infrastructure are good, although there are suggestions that the group may have to get past some difficulties with local communities. Maybe that’s what is holding the stock back. 

I really don’t recommend speculating in juniors unless you are prepared to factor in some pain. So much more seems to go wrong than right. But then along comes a bull market and all is forgiven. QCCU is the small cap one I own. At 12 cents, there is plenty of upside. What’s the downside? Twelve cents – not a lot. But that’s not how it works, is it...

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