This year, commodities like gold and silver are grabbing headlines with their record-breaking highs, but one metal has been growing even faster and might even be a cooler story - copper, having shot up by 18% just this year (gold and silver are up 14% and 10% respectively)!
In fact, copper prices punched through the US$ 10,000 per tonne barrier for the first time in two years just this Friday! What has been fuelling this metal and can you make money off this?
What’s Going On?
In 8th grade economics, we learnt that the price of something rises if demand increases or supply decreases - and in copper’s case, it has been both!
Supply Decrease
Mining Disruption - The forecasted copper surplus for 2024 has vanished due to supply disruptions. Closures, such as Panama’s order to halt First Quantum Mineral’s mine and Anglo American Plc’s production cut have flipped the outlook from a surplus of 467,000 tons to a deficit of 450,000 in the second half of 2024!
Reduced Production - Chinese top copper smelters are collectively reducing production due to a raw material shortage (copper concentrate), as treatment charges (TC) in China dropped to US$ 11 per metric ton from US$ 46 per metric ton (76% decline) in two months, the lowest since 2013.
Demand Increase
Electric Vehicles: Copper plays a crucial role in electric vehicles (EVs), being utilised in electric motors, batteries, inverters, wiring, and charging stations due to its durability, flexibility, dependability, and excellent electrical conductivity. EVs require as much as 4x the amount of copper used in a typical combustion engine vehicle. Electric cars accounted for around 18% of all cars sold in 2023, up from 14% in 2022 and only 2% five years earlier, in 2018.
Data Centres: Data centres require large quantities of copper to be used because of its electrical properties. 75% of copper demand for data centres is used in power distribution (wires and cables). To give you perspective, Microsoft’s US$ 500 million data centre in Chicago required 2,177 metric tonnes of copper in its construction!
Why Should You Care?
India's copper demand is poised to surge by 11% in FY24 and FY25, outpacing global growth rates, fuelled by infrastructure spending and the shift towards renewable energy, targeting a 500 GW capacity. Government initiatives such as the smart city programme, electric vehicle expansion, and railway electrification further bolster copper consumption.
Although the increasing prices of copper do not bode well for India, as it imported copper worth Rs. 27,000 crore in FY23 (a 23% increase YoY) and is a net importer of the metal, investors can tap into this structural trend by considering companies that can benefit from it.
Examples include cable and wire companies (where the main raw material is copper but they are still able to pass on the increase in prices as they are integral to infrastructure) and Hindustan Copper, India's sole copper ore mining company, poised to capitalise on rising copper prices (which have already risen by 26% this month).