Copper demand is set to soar. And when that happens, copper stocks will rise along with it.
Copper isn’t just one of the world’s oldest known metals. It’s the lifeblood of our modern world, the conduit that delivers electricity from power plants to devices.
Beyond its electrical uses, copper is also found in everything from plumbing to the pennies.
- Infrastructure: Copper is integral to the construction sector where it’s used for wiring in buildings, plumbing, air conditioning, and heating systems.
- Electronics: Because of its excellent electrical conductivity, copper is used in everything from power generation to transmission lines to your everyday household electronics.
- Transportation: Automobiles use copper in their motors, wiring, radiators, connectors, brakes, and bearings. Traditional gas-powered vehicles require 18-49 pounds of copper each, but hybrid electric vehicles (HEVs) demand up to 85 pounds!
A Green Tech Enabler
In addition to its traditional uses, copper plays a significant role in renewable energy technologies. For instance, a single wind turbine can contain up to 4.7 tons of copper.
The demand for electric vehicles (EVs) alone is set to dramatically increase copper usage. Current estimates suggest that a full EV requires around 183 pounds of copper, nearly four times as much as a conventional vehicle.
Solar and wind farms also require significant quantities of copper. A single megawatt of solar power requires about 5.5 tons of copper, while onshore and offshore wind installations require between 3.6 and 21.7 tons of copper per megawatt, respectively.
Urbanization and Demand for Copper
Increasing global urbanization is another factor poised to drive copper demand. As more people move into cities, the need for modern, electrified housing will surge.
Similarly, as developing nations upgrade their infrastructure, they’ll also need more of the red metal.
Are We Ready to Meet the Demand?
Copper demand is projected to grow from 25 million metric tons (MMt) today to about 50 MMt by 2035, a record-high level that will grow to 53 MMt by 2050.
Current supply does not come close to meeting that projected demand.
For example, in 2022, global copper mine production sat at approximately 22 million tons, short of even the 25 million tons of demand we saw in 2021. This means that even with recycling efforts, new copper resources will need to be developed.
There are a number of reasons why current supply doesn’t meet projected demand.
- Copper mining is a lengthy and expensive process, often taking up to 10 years from exploration to production.
- Environmental regulations are making it more difficult and expensive to mine copper.
- Political instability in some copper-producing countries present significant challenges.
- While there are substantial known copper reserves, the growing demand from green technologies and infrastructure development will likely outstrip supply.
The combination of the above factors is creating a supply deficit that will lead to higher prices for copper and other copper-intensive products.
But it also provides an investment opportunity and a way for you to diversify your portfolio beyond stocks and bonds.
Ways to Invest in Copper and Copper Stocks
You can profit from a copper boom in several ways:
- Physical Copper: While buying physical copper bars and coins is possible, it’s not practical for most investors due to storage and liquidity issues.
- Copper Futures: These are contracts to buy or sell a set amount of copper at a future date. This method is more common among professional traders, and it involves a degree of risk that might not suit retail investors.
- Copper ETFs: Exchange-Traded Funds (ETFs) are a simple and accessible way for retail investors to gain exposure to copper price movements without the need to handle physical copper. Some ETFs track the price of copper futures, like the United States Copper Index Fund (CPER), while others invest in a basket of copper mining stocks (e.g., COPX).
- Copper Mining Stocks: Investing in copper mining companies is another indirect way to gain exposure to copper. When copper prices rise, these companies can benefit, particularly if they have low production costs. Of course, investing in individual companies also involves company-specific risks.
Understanding the Risks
Like any investment, investing in copper comes with risks. Commodities are known for their price volatility, and copper is no exception. Factors such as geopolitical tensions, currency fluctuations, and changes in global economic growth can significantly impact prices.
It’s also crucial to remember that while the future looks bright for copper, investing in commodities should be just part of a diversified investment strategy.
As always, do your own due diligence, understand your risk tolerance, and limit your position sizes so that you are not putting too much of your portfolio in danger.
Even if you do all of that, if your personal risk tolerance doesn’t permit volatile price swings, I suggest passing on commodities altogether.
Top Individual Copper Stocks
Which copper companies deserve a spot on your watchlist?
I just shared my top 3 copper stocks with premium members of The Antagonist.