Recording date: 18th July 2024
The Battery Show (Copper Bottomed, Episode 16)
The copper market has seen significant action over the past two months, with prices rising to around $5/lb before pulling back to current levels of $4.41/lb. This volatility has been driven by fund flows and aggressive trading by financial institutions, sometimes at odds with on-the-ground market conditions in China. While Chinese copper traders were seeing weakness in housing completions, which typically drive copper demand, prices rose due to strong US demand and bullish sentiment around copper's long-term prospects.
Demand for copper continues to grow from electric vehicles, with global EV sales expected to reach 17 million units this year. The rapid growth of data centers is also driving significant copper demand, with global data center electricity usage now exceeding that of most countries. However, there are some headwinds, including China's state grid shifting to aluminum for some high-voltage transmission lines.
The long-term outlook for copper remains very bullish due to the difficulty in bringing new supply online. It takes an average of 23 years from discovery to production for new copper mines, and the pipeline of new projects is insufficient to meet projected demand growth. This supply crunch is expected to drive significant price volatility in the coming years.
M&A activity is heating up in the copper space as major miners look to acquire assets rather than develop them from scratch. There are rumors of potential bids for companies like Teck Resources and Filo Mining. Meanwhile, developers like Marimaca Copper and Foran Mining have successfully raised capital to advance their projects.
On the exploration front, several companies reported promising drill results. Highlights include Filo Mining's continued expansion of its high-grade zone, NGX Minerals' bonanza-grade intercepts at its Luna project, and Solaris Resources' restart of drilling at Warintza. Smaller explorers like Atex Resources, Aldebaran Resources, and C3 Metals also reported encouraging results that expand the potential of their respective projects.
For investors, the copper sector offers opportunities across the risk spectrum. Major producers and advanced developers provide more stable exposure to rising copper prices. Exploration-stage companies offer higher risk-reward potential, with the possibility of significant share price appreciation on discovery success. Given the strong long-term fundamentals, a basket approach of copper-focused investments could be an attractive way to gain exposure to the sector.
Key factors for investors to watch include Chinese copper demand trends, particularly in the property sector; the pace of global EV adoption and grid infrastructure buildout; progress on permitting and construction of new mines, especially in challenging jurisdictions; and potential technology breakthroughs in areas like extraction techniques or recycling that could impact the supply-demand balance. Overall, the copper market appears poised for an extended period of tight supply and rising prices, creating a favorable environment for well-positioned companies across the value chain.
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