FORECASTS & TRENDS E-LETTER
by Spencer Wright
May 28, 2024

The Growing Demand for Copper

IN THIS ISSUE:

1. Copper is in (Almost) Everything

2. Copper Demand Versus Supply

3. Copper as an Economic Indicator AND Inflation Hedge?

4. The Cure for High Prices is High Prices

5. Final Thoughts

Copper is in (Almost) Everything

Copper surrounds us, permeates us, it binds our world together. Ok, that may be over stating this a bit. But copper is in almost everything. Copper is, in fact, so ubiquitous that I will stick to three of its major uses on a global basis. Copper is used mostly for industrial and domestic electrical wiring as well as HVAC systems and plumbing, electronic and telecommunications devices of all types in the form of semiconductors and other components, and in the production of vehicles both electric and traditional. I must mention that EVs use nearly three times the copper of internal combustion vehicles. Consider the following infographic.

According to Investing News Network, “Energy storage may prove to be one of the most copper-intensive markets in the 21st century.” And in a 2022 report on the future of copper by S&P Global Market Intelligence, “The rapid, large-scale deployment of these technologies globally, EV fleets particularly, will generate a huge surge in copper demand.” The linked report is fascinating and worth your attention. FYI, it is a lengthy, professional level piece.

As the demand for these uses grows, so does the demand for copper. The demand has grown so much in recent years that the price of copper hit a lifetime high just a few days ago. Many of you are likely asking, how much copper is there? Do we have enough? Great questions. Let’s take a look.

Copper Demand Versus Supply

Copper is one of the big three industrial metals along with iron and aluminum.  According to the latest data from the USGS, global copper demand in 2024 will be approximately 26 million metric tons. The current projected production for 2024, or supply, is approximately 24 million metric tons. It is this supply/demand imbalance that has led to high prices and could lead to higher prices still. This has happened before.

A copper supply/demand imbalance sparked a record-breaking rally in 2021, pushing prices to an all-time high of $10,730 per metric ton. The very recent peak price as of a few days ago was approximately $11,464 per metric ton. And this may not be the top. We will get deeper into that a little later.

Obviously, this situation is suboptimal. Global production is ramping up, but it takes time. Chile, Peru, the US and Mexico together provide the bulk of global copper. China, the Congo, Russia and Australia are also significant producers. China is the world’s largest consumer of copper.

The following infographic is from 2021, so it is slightly out of date. But it shows the 20 largest copper mines in the world.

Copper as an Economic Indicator AND Inflation Hedge?

Did you know that the price of copper is considered a leading economic indicator? Because copper is so widely used, when the price is high it is considered a sign that the economy is on solid footing. Copper’s price movement has been shown to have a strong correlation with economic indicators such as GDP growth, inflation and employment rates. This historical correlation makes it a reliable indicator of economic trends. When referred to in the context of economic health, copper has been given the nickname “Doctor Copper.”  When the economy is overheating, or inflation is present, the price of copper rises.

This connection makes copper a better inflation hedge than gold, by far. No kidding. Consider this infographic.

I must admit that I was very surprised to discover this!

The Cure for High Prices is High Prices

Gary often said that the cure for high prices was high prices. He was right, of course. This chart of copper futures makes that point. The chart covers the last five years and shows the price of one pound of copper. A metric ton is 2204.623 pounds.

As you can see, copper has retreated from it’s all time high. In fact, last Friday was quite a reversal in price, down nearly six percent. The horizontal lines mark support and resistance with red and green respectively. The area between the vertical blue lines marks a period of decline from 2022, consolidation in 2023, ending with the recent breakout in April. The blue circle in the bottom panel highlights that momentum is currently slowing. That does not indicate that the new uptrend is out of gas, not at all. And while this current move is impressive, it has nothing on the 148% move from the April 2020 lows to April of 2021. An argument can easily be made that copper is emerging from a long consolidation after that huge advance. Also, it is easy to imagine copper going even higher given the global demand and current supply/demand imbalance.

It is also important to note that after the massive advance from the 2020 low, copper fell by nearly 34%. The cure for high prices is high prices.

Final Thoughts

As I got into this topic, I wondered how the price and availability of copper would affect the US. The global demand for copper is surging, no question. Until recently, the US has been able to supply its domestic copper usage with little to no import of foreign copper needed. In the years to come, that will not be sustainable. This is from the previously mentioned S&P Global Market Intelligence report:

“While copper has historically been an internationally traded commodity, for most of the 20th century, the United States was largely self-sufficient. Even as late as 1995, domestic refined production represented 90% of its copper needs, thus importing only 10%. But dependence on global markets has grown rapidly in this century even as domestic consumption has declined. Today, US domestic production amounts to only half of its copper requirements, a dependence that will grow substantially in the years ahead despite increased capacity utilization and stepped-up recycling. By 2035, the United States will be importing between 57% and 67% of its copper needs.”

That sounds a little ominous to me. I wonder what the price of copper will be by then?

Thanks for reading,

 

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