Ever thought about investing in copper?
Used for thousands of years, copper has become a crucial material for the global economy, but it can also be a great investment.
In this guide, we’ll explore the role of copper in the modern world, what makes copper so special, and ways to invest in copper.
So, if you are curious to know more, read on.
What is copper used for?
Copper is an essential industrial metal to our global economy. Reddish in colour, copper is the third most-consumed industrial metal in the world, after iron ore and aluminum.
What makes copper so special is its properties. Copper is an excellent conductor of both heat and electricity.
It’s also very malleable and ductile, that is, it can be molded into whatever shape is needed like wires and pipes. What’s more, copper has anti-bacterial properties and is great at resisting corrosion.
It’s some of the reasons why it’s the metal of choice for building construction, electrical wiring, appliances, and electronics to name a few.
Source: Copper Alliance
We’re surrounded by copper in our everyday life. In fact, the average family home has more than 90kg of copper, mostly from electrical wiring and plumbing.
We even use it coins! Australian silver coins (such as the 10- and 20-cent coins) are 75% copper, 25% nickel, and the $1 and $2 gold coins are mostly (92%) copper.
Copper is so tied to our global economy that it’s even earned it a nickname — Dr Copper.
That’s because copper is usually used as a barometer of health for the economy and copper can be a great predictor of future economic growth.
In other words, when copper prices go up, it’s a sign of a healthy economy, whereas when they go down, it could indicate there’s trouble ahead.
With that in mind, let’s look at copper prices.
The price of copper
Copper prices can be very volatile. As you can see below, copper has been on a roller coaster ride in the last couple of decades:
Source: Federal Reserve
As mentioned, one of the main drivers of copper demand is a healthy economy. And here, China, the largest copper buyer in the world, also plays a big role.
As you can see above, the price of copper ran up in the early 2000s as China went through a major urbanisation phase.
Prices then cratered in 2008, during the global financial crisis and then took off again in 2009–10 as the global economy recovered and China built up its copper supplies.
In 2016, copper prices fell after China’s demand softened due to some economic turbulence in the country.
Prices dropped again during the pandemic in 2020…and then went on to hit record highs in 2021 as economies reopened and the energy transition took on momentum.
Copper prices dropped in 2022, after central bankers increased interest rates to battle inflation, something that prompted a stronger US dollar and worries of a global recession.
Still, copper prices remain considerably higher than before the pandemic, and, at time of writing, they’ve begun to climb again over supply concerns and a weakening US dollar.
And while it may sound strange, considering that copper prices are a proxy for the economy’s health and there’s lots of talk of recession, the future of copper is looking very interesting indeed.
Copper prices could do quite well in 2023 as China continues to open its economy and copper supply remains tight.
Over the long term, though, copper demand is set to take off with the energy transition but also from other sectors of the economy as our electricity needs grow and emerging countries — like India —continue to industrialise.
Source: S&P Global
S&P Global expects that copper demand could double from 25 million metric tonnes today to 50 million metric tonnes by 2035.
Supply, though, could struggle to keep up with this increase in demand after years of underinvestment in the sector.
Where will all this copper come from?
What are the top copper producing countries in the world?
Copper mining is quite concentrated.
Chile is the global leader in copper production by far. The country is home to some of the largest copper mines in the world based on capacity, such as Escondida and Collahuasi:
Source: S&P Global
Peru is the second-largest producer followed by China and the Democratic Republic of the Congo. Together, these four countries produced just over half of the world’s copper in 2021.
One thing to note about copper is that it can be recycled. In fact, much of the copper in use today comes from recycled copper.
The International Copper Association Australia estimates that of the 550 million tonnes of copper we’ve mined since the 1900s, two-thirds of it is still in use, which is astounding.
Clearly, there are plenty of advantages to reusing copper. Mining the stuff can be quite energy intensive and recycling copper can help in meeting growing demand.
But back to miners.
If you are wondering where Australia sits in the copper producing countries of the world ranking, it’s at number six. Australia produced 4% of the global copper in 2021.
But it has the potential to produce plenty more.
That’s because Australia holds the second largest reserves of copper behind Chile.
As you can see below, Australia has several large copper mines such as Mt Isa in Queensland and Olympic Dam in South Australia:
Source: Geoscience Australia
So with a looming copper shortage we could see Australia start to boost its copper production.
Is copper ‘the new oil’ ?
Countries worldwide are shifting away from fossil fuels and governments have been pledging plenty of money into infrastructure and energy. And for this, we are going to need plenty of copper.
Solar and offshore wind, for example, require 2–5 times more copper per megawatt of installed capacity than the power that comes from using natural gas or coal. And an electric vehicle needs 2.5 times more copper than an internal combustion one:
And then, of course, you need copper for all that wiring for energy transmission.
Source: Oz Minerals
It’s why applications in clean energy technology, including wind turbines, solar panels, and electric vehicles, represent the fastest-growing market for copper.
So demand for copper is expected to ramp up in the next few years at the same time that supply is looking shaky.
Rystad Energy, for example, expects that global demand for copper could exceed supply by more than six million tonnes by 2030.
Goldman is even more bullish. They’ve even gone as far as calling copper ‘the new oil’.
They expect the metal could hit US$15,000 a tonne as early as 2025, with the renewable energy transition creating a long-term supply gap of 8.2 million tonnes by 2030.
As Goldman wrote in a report in 2021:
‘The critical role copper will play in achieving the Paris climate goals cannot be overstated. Without serious advancements in carbon capture and storage technology in the coming years, the entire path to net zero emissions will have to come from abatement — electrification and renewable energy. As the most cost-effective conductive material, copper sits at the heart of capturing, storing and transporting these new sources of energy. In fact, discussions of peak oil demand overlook the fact that without a surge in the use of copper and other key metals, the substitution of renewables for oil will not happen.’
In short, we are going to need a lot of copper…and investment.
With copper prices moving higher, we’re already starting to see some money flowing into copper. In 2021, overall copper exploration budgets hit US$2.31 billion, up around 32% from 2020 as cashed up miners boosted copper exploration.
And more investment could pour in to close the supply gap.
As Bloomberg reported:
‘The copper industry needs to spend upwards of $100 billion to close what could be an annual supply deficit of 4.7 million metric tons by 2030 as the clean power and transport sectors take off, according to estimates from CRU Group. The potential shortfall could reach 10 million tons if no mines get built, according to commodities trader Trafigura Group. Closing such a gap would require building the equivalent of eight projects the size of BHP Group’s giant Escondida in Chile, the world’s largest copper mine.’
So, with copper being a fundamental metal in the energy transition and a looming copper supply shortage, we could see copper do well in the next few years.
How to invest in copper
There are plenty of ways to get involved in copper. Perhaps the easiest way to invest in copper is through exchange traded funds (ETFs).
On the ASX, the ETF Global X Copper Miners [ASX:WIRE] gives you exposure to a number of global copper miners such as Ivanhoe Mines, First Quantum, BHP Group, and Southern Copper.
Another way is to invest directly in mining stocks. Although, there are not a lot of pure-play copper stocks on the ASX. Copper is usually found along with other metals such as gold, silver, and zinc, which is not a bad thing since it allows copper miners to diversify.
One of the largest copper producers on the ASX is BHP Group [ASX:BHP], it also produces iron ore, nickel, potash, and metallurgical coal.
BHP operates Escondida in Chile, which, as mentioned, is the largest copper producing mine in the world. BHP also owns the largest copper mine in Australia, Olympic Dam.
In FY22, the company produced 1,600 kt of copper, and it’s recently been making significant investments to increase its copper output to keep up with rising demand.
One way it’s been trying to do this is through acquisitions. At time of writing, BHP has made a proposal to acquire another big copper name on the ASX, Oz Minerals [ASX:OZL].
Oz Minerals owns Prominent Hill, a copper, gold, and silver mine located in South Australia close to BHP’s Olympic Dam. Their assets also include Carrapateena, also in South Australia and the West Musgrave Project, a copper and nickel project in Western Australia, along with several other projects in Brazil and Sweden at different stages.
Rio Tinto [ASX:RIO] is another important ASX copper stock. While Rio Tinto produces diversified materials such as aluminium and iron ore, it also manages one of the world’s largest known copper and gold deposits: Oyu Tolgoi in Mongolia.
Rio has also been taking steps to strengthen its copper production.
It’s recently increased its Oyu Tolgoi share of ownership to 66% interest after buying up Canadian Turquoise Hill Mining, with the remaining share (34%) owned by the Mongolian Government.
Rio has also recently partnered with Canadian company First Quantum to develop copper project La Granja, in Peru, which is the fourth-largest copper project in the world.
And Rio also owns (55%) and operates Resolution Copper, a large undeveloped project in the US, with BHP owning the remaining stake.
Beyond producers, there are several companies scheduled to come into production over the next few years that could take advantage of the coming copper shortage. Just to be clear, though, these are riskier as they aren’t producing yet and a lot could go wrong.
One such company is Develop Global [ASX:DVP], which has ex-Northern Star Resources Chairman Bill Beament as its managing director.
The company has two projects in its portfolio. One is Sulphur Springs, a copper-zinc project in Western Australia.
Develop is also racing to revive the Woodlawn zinc-copper project in New South Wales, which had been a producing mine for 20 years until the ’90s. Heron Resources then poured $340 million into it before putting the mine on care and maintenance in 2020.
Develop’s goal is to have Woodlawn operationally ready in 2024.
Hillgrove Resources [ASX:HGO] is also another company moving closer to production. Hillgrove owns the Kanmantoo Copper Gold Mine in South Australia, which was in operation until 1976.
Hillgrove says it’s fully funded and is looking to produce its first copper by next year.
Caravel Minerals [ASX:CVV] is developing the Caravel Copper Project in Western Australia. According to the company, it’s the largest undeveloped copper project in Australia and is expected to reach first production on the second half of 2026.
While it’s a low-grade mine, its 2022 pre-feasibility study showed the project could deliver 62,000 tonnes per year in copper concentrate at a low cost, so it could do well if copper prices continue to increase.
What’s interesting about Caravel is that it’s also studying the possibility of producing molybdenum, a metal used to make alloys. The price of molybdenum is up close to 60% year-on-year, at time of writing, after supply disruptions.
Just note that the companies mentioned in this report are not recommendations, just ideas to get you started on your research. Investing in mining stocks carries risks that you should be aware of prior to investing.
Key copper take-aways
To wrap up, there’s plenty happening in the copper space.
Copper is a fundamental metal for the energy transition and copper stocks could do well as demand for the metal is expected to rise in the next years.
And don’t forget that copper is also a commodity, so it could be a great hedge against inflation.
Of course, with copper tied to the health of the economy, there are risks, in particular if we go into a recession. But with copper demand rising, governments continuing to move into the energy transition, and supply trying to play catch up, copper could be a great investment in years to come.
All in all, all great reasons to consider investing in copper.
If you’re interested in learning more and keeping up to date with the copper sector, make sure you sign up for Fat Tail Commodities.
Best,
Selva Freigedo
