Ni hao commodities! Is copper the new oil?
Commodities are having a bullish moment. Copper has been reaching new all-time highs and doubling its value since its lowest price during the pandemic. Other than niche interior design trends what is driving up the demand for copper?
The short answer is fourfold: China, reopening of economies, clean energy and the new Biden bill.
What do all of them have in common? We’ve been experiencing a resurgence of manufacturing and construction driven by increased public spending by China and the US with fewer supplies available.
The renewed focus by policymakers on sustainability and clean energy with more investment cleaner, more electric alternatives means commodities, and in particular metals such as copper are having a moment. Is this bullish run short-lived due to a spike in demand as economies reopen? Time will tell, but Goldman Sachs has been making headlines with its forecasts of copper potentially reaching $15,000 per tonne by 2025.
How fiscal policy is driving up demand
One of the reasons we are seeing this sudden surge in copper demand is down to new fiscal policies by some of the biggest economies in the world.
Both China and the US have reacted to the pandemic by opening up wallets and investing heavily in future cleaner energy, infrastructure and manufacturing. This means that markets are responding quickly and are buying up dwindling supplies of commodities such as copper and other metals that are crucial for the production of a cleaner future to reduce the use of oil and gas.
Who are the big copper producers to watch?
The top three countries in 2020 in copper mine production are Chile, Peru and China.
Who are the listed companies with large copper mining operations you should have on your radar?
US miner Freeport-McMoran Inc. (FCX), Australian OZ Minerals Ltd. (OZL), Chinese Zijin Mining Group Co. Ltd. (2899.HK) are three of the biggest players out there.
Other big copper players to watch:
Codelco, headquartered in San Diego, Chile
BHP – the big Anglo Australian miner
Glencore, headquartered in Switzerland with mines spread across the globe
Canadian Turquoise Hill Resources Ltd.
Copper Mountain Mining Corp, another Canadian copper player
Southern Copper Corp, subsidiary of Grupo Mexico with locations in Mexico and Peru
The ETF that’s been outperforming the market with a 136.6% return in 2020 is the Global X Copper Miners ETF (COPX).
Copper is certainly having a moment. As mines across the world will look to increase production to keep up with the increased demand for copper and other metals required to build a cleaner future, copper is definitely on every trader’s must-watch list for the coming weeks and months.
Who knows, if prices continue to surge as they have been, you may need to rethink your color scheme for your next dream home. Copper might end up being not just the new oil, but also the new gold.