Everlution Newsletter published a two-part series on late 2020 on why copper prices were going to soar. To read go to https://ecoprofit.com.au/copper-could-be-like-gold-part-1/ for discussion of supply issues and https://ecoprofit.com.au/copper-could-be-like-gold-part-2/ for discussion on demand issues.
Well, low and behold, copper stocks are on the move. From a cohort of around 90 companies with copper operations, 17 stocks posted an intraday return of at least 10 per cent to start the week. Gains were led by Hammer Metals which climbed by 23.8pc and is up by more than 1,400pc over the past 12 months.
A number of themes have underpinned the move; strong demand out of China, the prospect of a global growth recovery as economies emerge from the pandemic, and the prevalence of copper as a key input in electric vehicles and renewable energy.
“Around four times more copper is used in an electric vehicle than a regular internal combustion engine (ICE) automobile,” CBA analyst Vivek Dhar notes. It’s a similar story for renewable energy systems, which around five times as much copper as traditional power sources.
Like iron ore, copper prices have also been supported by the post-COVID boom in industrial production activity out of China, which accounts for around 55-60 per cent of global copper demand.
And since the first positive vaccine news in November, that outlook has extended to other major economies such as the US, where the Biden administration has flagged big infrastructure spending plans to help kickstart activity.
Meanwhile, copper stockpiles at the Shanghai Futures Exchange (SHFE) warehouse have plummeted over the past year. Global warehouse stockpiles for the London Metals Exchange (LME) have also fallen.
Taken in aggregate, the shift “likely indicates that current demand is robust (or at the very least that current demand is outpacing supply)”, Dhar said.
For ASX copper stocks, where prices are headed next is now the key question. Dhar expects prices to peak at $US3.90 per pound in the June quarter, before easing back to $US3.60/lb by the end of the year.
In the near-term, Dhar said the bulk of the price action will be driven by activity out of China. For prices to continue climbing above $US4/lb, China will have to maintain its torrid pace of construction activity into the second half of this year.