Why is copper such a great investment?


Why is copper such a great investment?

Copper is a mineral that has been used by humans for thousands of years. It is prized for its color, resistance to corrosion, and thermal and electrical conductivity. Copper is essential in the production of electrical wiring and other electronics, so it is no surprise that it has become a popular investment choice among investors. Here we will explore some of the key reasons why copper is such a great investment choice.

For starters, copper is a precious metal. When we say precious metal, we usually think of gold and silver but copper is right up there with gold because of its high demand and uses.

Copper Price Chart

Copper Price Chart

Figure 1 | Source: Macrotrends

Figure 1 above shows the copper price chart for the last two decades. It can be clearly seen that the price of copper has risen from under $2 to over $10 per kilogram in two decades. This is a very healthy return on investment, especially when you consider the price stability and appreciation over the long term.

Between 2010 and 2020, the price of copper seems to have a general downward trend. This is because copper suppliers in general were not actively investing in copper mining as the global outlook for copper was stable. However, the pandemic brought about structural changes to the copper industry.

The post-2020 uptick in copper prices is an interesting phenomenon for investors. In the last two years alone, the price of copper has risen from $5 to almost $10.8 per kilogram. This price increase is driven by major investment decisions that have all leveraged highly on the copper industry.

Based on data collected in 2019, the global copper industry is expected to grow at a rate of 4.6% to become a $222 billion market by 2026. The copper demand in 2022 alone is expected to increase by 2.4% whereas the supply for copper is expected to increase by 3.9% due to the biggest production increase since 2016. Previous calculations regarding the future of copper have changed and the structural changes in the industry are expected to lead to increasing demand year on year for the foreseeable future.

What is driving copper growth?

The primary drivers behind this growth are the electric vehicle market, the global shift to renewable energy, and increasing infrastructure spending announced by President Biden (also termed as Build back better).

The rise of electric vehicles is one of the most impactful factors in recent years that has caused a sharp increase in copper prices. Here is a comparison of how much copper is used in conventional gas-guzzling vehicles compared to their electric variants.

  • • Copper used in a conventional car: 8-22 kg;
  • • Copper used in hybrid electric vehicles: 39 kg;
  • • Copper used in plug-in hybrid vehicles: 60 kg;
  • • Copper used in battery electric vehicles: 83 kg;
  • • Copper used in hybrid electric bus: 89 kg;
  • • Copper used in battery electric bus: 369 kg.

Electric vehicles use roughly 4 times as much copper as traditional gasoline vehicles. As the market for electric vehicles continues to grow, the demand for copper will also continue to grow.

PEV Stock and Charging Infrastructure Needed

Figure 2 | Source: Copper.org

Electric vehicles also create complimentary demand for charging stations, which also use a lot of copper wiring. Figure 2 shows how the demand for both electric vehicles and charging ports is expected to increase. Based on this data the electric vehicle industry alone is going to increase the demand for copper by 1700 kilo tonnes by 2027.

Another major factor that is driving copper prices is the global shift to renewable energy sources. Renewables like solar and wind require a lot of copper for their construction and maintenance. In fact, wind turbines are the most copper intensive solution in the whole renewable energy sector.

According to Wood Mackenzie, the global wind turbine fleet is expected to generate 5.5 megatonnes of demand for copper by 2028. Copper is used everywhere in a wind turbine, from generators, gears, tower boxes to cabling. The same applies to solar panels which are less copper intensive but still they rely on copper for good conductivity and improved efficiency.

As the world shifts away from traditional energy sources to cleaner renewable energy, the demand for copper will continue to grow.

The demand for copper in electric vehicles and renewables cannot be seen in isolation. They are a part of the bigger picture of global infrastructure shift towards sustainability. Construction activity around the world is at an all-time high and this is good news for the copper industry. Copper is used extensively in construction, so as infrastructure spending increases, so does the demand for copper.

Cooper has a bright future

Peter McNally from Third Bridge believes that it is not yet clear how much increase in demand will come due to the Build Back Better initiative announced by President Biden, but it is certain that there is going to be a substantial increase in demand in any case. Because infrastructure requires heavy amounts of copper, especially when the said infrastructure is being built on sustainability principles.

All in all, there are a number of factors that are driving copper prices and demand higher and this makes it a very attractive investment choice. The price stability, appreciation, and growth potential make copper a sound investment for any portfolio.

Investor Takeaway:

The drivers behind the rising copper prices are electric vehicles, the global shift to renewables, and increasing infrastructure spending. These factors are all part of a larger trend towards sustainable living and suggest that copper prices will continue to rise in the future.

Copper is a very stable investment with good appreciation potential and therefore should be a part of any well-diversified portfolio. It can also be used as a hedge against inflation. However, instead of investing directly into copper like gold bullion, investors should invest in copper mining companies because investing directly in copper will only expose them to the price appreciation of copper, whereas mining stocks will expose them to price appreciation as well as dividends.


Why is copper such a great investment?

 



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