Copper’s supply-demand gap

The recent surge in the copper price has reflected a lack of supply for this versatile metal, says Roberta Caselli, research analyst at Global X ETFS, who argues that growing use cases present an investment opportunity.

From construction to power generation, copper is one of the world’s most versatile metals with a range of industrial applications. With its plethora of uses, copper is often seen as a leading barometer for global economic health, earning it the nickname “Doctor Copper”.

However, copper prices’ recent surge to approximately $10,000/tonne has drawn attention to a fundamental dilemma facing the industry: there is not enough supply capacity to meet long term demand. Surging prices have been driven by factors including supply cuts, renewed strength in the Chinese market, the potential for copper as an input in Artificial Intelligence (AI) technology and the global energy transition – particularly in copper-intensive electric vehicles. Although mining companies have signalled a willingness to produce more of this crucial commodity, significant capacity investments are necessary in order to fill the market gap.

The majority of copper is mined from Latin America. Chile and Peru contribute a third of the world’s supply on their own, while the Democratic Republic of Congo is also a major contributor. Outside these regions, China also plays a key role in copper supply.

However, a once-forecasted supply surplus of copper, owing to newly planned projects, has nearly entirely disappeared. In Zambia, copper mines have experienced a shortage of electricity due to a drought affecting hydroelectric power plants. Codelco, the leading producer of copper, has reported a decrease in quarterly production because of lower-grade ore at its ageing mines in Chile. Protests at MMG’s Las Bambas Copper Mine in Peru have been reignited. The Chinese-owned copper mine, which has been repeatedly affected by road blockades from local residents, faces new interruptions after a year of relative stability.

All of these factors are contributing to the surge in the commodity’s price, which recently reached its highest level in two years.

Strong signal from China

From a demand perspective, approximately 55% has come from China in recent years. The country has focused significant public investment behind infrastructure and its real estate sector as the primary means of stimulating its economy. Data from China showed industrial output rising 7% in the first two months of 2024 while growth in fixed-asset investments also accelerated faster than expected. Additionally, China’s March Caixin manufacturing PMI marked its highest reading in 13 months, a strongly positive signal for copper demand in the country moving forward as the government seeks to avert a broader housing crisis and continues to recover from its pandemic-era downturn. At this stage of the year, copper demand from China has been running at 12% above last year’s level.

In parallel to this, demand from AI data centres could further support copper’s long-term structural demand growth. Copper’s electrical conductivity and low cost make it crucial for power infrastructure expansions. As AI computers use more electricity per square foot, data centres must upgrade their power and cooling systems. For investors interested in exposure to the AI technological revolution but hesitant to directly invest in the major tech players, copper can be an alternative means of gaining access in one’s portfolio.

The global energy transition is another key factor linked to the growing demand for copper. It is considered one of the core material building blocks for clean energy technologies because it has the highest conductivity of all non-precious metals. Electric vehicles (EVs), charging infrastructure, and renewable energy sources such as solar panels and offshore wind turbines all require a large quantity of copper. EV engines use over twice as much copper than cars with internal combustion engines (ICE), while PV solar systems require more copper than traditional energy systems. In a wind farm, copper is used for generators, wiring, cable and step-up transformers. The surrounding infrastructure that connects these technologies to the electrical grid also uses copper to run reliably and efficiently. Although EV demand softened relative to expectations in the past several years, the long-term investment case behind the global green transition remains sound.

Growing use cases

With the gap between copper supply and demand steadily increasing, there is a unique opportunity available for investors looking to capitalise on increasing copper prices amid a range of growing use cases. Historically, copper miners are a leveraged play on the commodity, outperforming in bullish markets due to their operating leverage while underperforming in bearish markets. However, exposure also brings risk, be these geographic or related to the fortunes of individual securities in what can be a volatile space. As a result, gaining exposure via a single vehicle where investors can mitigate elements of risk via exposure to the copper market as a whole may offer the best chances of success as high levels of demand continue.

*Roberta Caselli is a research analyst at Global X ETFS.





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