A copper commodity super cycle
When the world comes to a halt the commodity assets get to start from a level playing field, unfortunately that was a real low starting point back in 2020. Unbelievably, but thankfully briefly, below zero for Oil.
2020 ended strong, and now we are comparing prices of copper today to the meteoric rise from the depths of last March. We are still in an uptrend but yes, coppers price momentum in 2021 is not quite what it was in the latter stages of 2020. However, new fundamental changes are happening along with inter-governmental policies and this is all leaning towards a new environmental policy, which itself, is accelerating the demand for copper.
China is the manufacturing hub of the world still, and they are the main engine driving this copper demand. There has been solid investment in renewable energy and electronic vehicles (EV) and EV sales continue to accelerate. The industry has its own cult-like leader and the head of this movement is the richest man in the work Elon Musk. Never has a man been so rich from heading a company that makes so little profit.
Not only do EV’s use more copper compared to their combustion engine equivalents, but the network needed to re-charge the EV’s is a greater drain on current copper supply. On my street alone there are 2 fixed charging stations and the cables running across pavements to the EV’s on the urban streets are becoming problematic for anyone reliant on clear passage. China again is the leader in re-charging, expanded its network by 112,000 new connectors in December.
After what happened to supply chains in 2020 there is a case that hoarding of copper could well be happening and as supply fails to meet demand, prices of copper are set to rise further, with some analysts predicting considerable gains still to come. The COMEX, LME, Shanghai Futures Exchange all show depressed inventories which are keeping prices supported at these lofty levels. Leading the supply chain disruptions are miners in Peru and with import restrictions from Australia to China plunging the most since 2016 due to ‘souring relations” it is a case of China controlling most of the market.
Since March 2020, the idea of a new green deal and a move to decarbonisation is helping to sustain demand for EV’s and green tech. Economies based around the new technology and the supply of the hard commodities are set to gain the most and China’s GDP growth last year has them at the front of the pack. A strong economy leads to increased manufacturing and production and leading indicators show growth across a broad spectrum of Chinas economy.
I am not a fan of buying a breakout but the continued bullish momentum since copper closed above the 2018 swing high has been one way traffic. A pull back towards the breakout level of $3.25 would be welcome but traders think that may be left disappointed as the fundamentals are all pointing to the demand outstripping supply. This leaves the next swing high printed back in 2012 at $4.00 as a key technical level and it will be interesting to see if the prices of copper at these elevated levels can sustain purely on the demand or whether fair value is nearer to where we started 2021.
If you look across other commodity charts for the last 3 months, copper is not the largest gainer. Tin is up 27.57%, copper 18.83%, nickel 16.78% and aluminium is up 15.34%
The precious metals who are also benefitting from the EV industry are also up bar Gold. In the last 3 months platinum is up 45.02% and if you look to the last 3 years for palladium that commodity is up 135% since the EV market really started being taken seriously.