Sirwin
Sirwin

How High Will Copper Prices Rise?


In order to invest in a commodity, you need to know the characteristics of that commodity very well. What is the demand and how are production efficiencies changing? We know that human ingenuity has made some of the commodities irrelevant or reduced their use over time. Because that old commodity can be replaced with new materials. I find it interesting in that respect. I find most of the data on commodity scarcity to be very unreliable. Because when you exceed a certain expenditure, for example, this 12 thousand dollars / ton in copper, that element can actually be abundant in the world and I like what people do with these commodities more. I am more interested in the products and services produced using those commodities, and being an investor in those companies. On the other hand, one would have to be blind not to see that there is an opportunity in copper right now. Because copper is the most important commodity in the areas in which I am already an investor. When we look at the main trends in the world, electrification is probably one of the most important. We are moving from oil to electricity. For this, batteries, solar systems and nuclear power plants are needed. Copper is used extensively in all of these.

The second big change is in artificial intelligence. There are huge artificial intelligence investments. You already follow Nvidia stock. Many data warehouses will be established in the coming years, and copper will be used as the main conductive material in all of these data warehouses. He's excited about it. The third is electric cars. Copper is also used extensively in electric cars and the increase in sales continues. Even if it has slowed down a bit. But when you say electric cars, when you look at the issue not as pure electric cars but by including hybrids, sales growth continues and hybrids also have an electric engine and battery. Again, the need for copper comes to the fore. So the demand for copper is increasing.

So what happens to copper supply versus copper demand? Here's the real issue. Because if the increasing demand could be met with sufficient supply, world prices would not increase like this. When you look at the price movement of copper, there is a 29% increase since the beginning of the year. When we look at the last year, there is a 35% increase. These are quite serious increases. The reason for this is the increase in demand for copper or the belief that the demand will increase significantly. Chile and Peru, which produce copper, seem to be the main players by 2023. Right after them is the Democratic Republic of Congo, which is experiencing great political turmoil these days. Then comes China. Then the order goes like the United States, Russia, Indonesia, Australia, Zambia and Mexico. If you pay attention, things are complicated in Congo on this list. It's actually mixed in Chile and Peru, too. Because there are serious objections to the opening of new copper mines here. Plus, there are serious rent fights going on over existing copper mines. You already know China's relationship with the west. Although America's copper production is large, it is not enough for itself. It imports roughly as much copper as it produces. Russia is also on the list. Again, a country with which the West is at odds. Things may be a little better in Indonesia and Australia, but then we see countries such as Zambia, Mexico and Kazakhstan, which can get involved politically at any time, in copper production.

Whenever a new copper mine is attempted to be opened, serious political debates arise. Environmentalists immediately step in. Because copper mines are not very cute things. A lot of water is consumed in copper mine construction. A lot of damage is done to the environment. That's why there is a lot of reaction against copper, especially in developed countries. There are talks about whether its production should grow or not. Many mines are quite old. For example, the mine in New Mexico was opened in 1909, but as far as I know, no new copper mines have been opened in America for a long time. Approximately 6/10000 of the Earth's mass is copper. But only 0.25% of this copper is clustered somewhere worth mining. There is also a significant increase in production. While there was 16 million metric tons of production in 2010, this reached 22 million metric tons in 2022.

However, as new mines are not opened and attempts are made to go deeper in old mines, both the costs increase and the amount of copper in the unit mass decreases. This is again one of the issues that creates copper scarcity in the world. Then, if you say that new copper mines should be opened, there are financial difficulties as well as political difficulties. A study by Black Rock says that the copper price must exceed 12 thousand dollars per ton for people to be motivated to open new copper mines. Although developments in that direction are not bad. With the recent attack, the price of copper per ton reached 10,757 dollars. Therefore, it seems like we have a little way left. You can be happy about this. But there is one more problem.

Stanley Druckenmiller, one of the investors I admire very much, says, okay, these investments may come, but copper investment is a long-term process. Either it needs to be mined, copper needs to be refined, etc. For this reason, it may take 10-12 years for copper from new mines to enter the production sector. So, even if we put in the money, it will take some time for these mines to come online and produce new supply to meet the demand. In this case, the basic balance is as follows: demand is high and it seems like it will increase further. The supply is low and it seems very difficult to increase it. In order to increase the supply, serious expenses are required and it also takes time. In this case, the price of such a commodity basically moves upwards. Of course, this is not guaranteed, I will touch on the risks at the end. But if you understand what I have said so far and you are a commodity enthusiast, you need to know the commodity characteristics and copper commodity well. You may need to do further research, remember that I am not giving investment advice.

But if you start from all this and say you want to devote your heart to copper, there are 3 different investment methods. One of these, of course, is to buy copper contracts. But for amateur investors like us, this may be a little more difficult. There are two other methods. One is ETFs, and the other is copper mining companies. When it comes to ETFs, if you go online and type copper ETFs, it will come up. You can see copper ETFs when you search on the Just ETF website. Click inside each one and see what's in the ETF. Is it just the mine, the miners, what else? How much does it cost? You need to examine what its performance has been so far. Since I do not give investment advice, I will not go into this detail. But basically, I find it reasonable to invest in ETFs in the mining business.

Commodity trading based on contracts is a bit more difficult for us amateurs, and these ETFs may include not only the mine itself, but also miners, sub-industries that produce products for that industry, etc. In this context, it is useful to take a look at ETFs. Another interesting method could be direct investment in copper miners. You can also see the top 10 copper miners on the Investing News Network website. Like Freeport McMoRan, like BHP, like Codelco, like Anglo American. Most of them are traded on American stock exchanges. It is possible to buy and sell stocks. Of course, as in every investment, there are risks here. First of all, and I think the most important one, if there is an economic slowdown in the world, copper will benefit their business. Because copper is used in industry, and when the economy slows down, industries slow down. This can be a source of stress on the copper. Because many economists are confident that America will enter a recession. I'm not so sure.

The second important problem is that the calculations I have just presented may be wrong. Maybe somewhere in the world copper mines have already started to be grown. But researchers don't know. In other words, supply may exceed demand or increase rapidly. It is impossible to be sure of this. And thirdly, humanity can save us from dependence on copper. So, on the one hand, new technologies may require less copper or may replace copper with alternatives. For example, we already know that some aluminum composites can replace copper in certain areas. Of course, these are long-term projects, that is, such changes and new technologies. Therefore, in the short term, I still expect the price movement of copper to be upward. As long as we do not face a major economic recession or recession. Because all industries where copper is used are the industries in which the world currently invests the most. We haven't mentioned it yet, but copper is used extensively in the defense industry. The defense industry is ultimately becoming electronic in that aspect.

Secondly, they also use copper directly as a mine in many areas, such as warships. In other words, if the world goes into war, the need for copper will increase again. In this context, I frankly see copper as a better idea than gold. So, I don't know which one's price will go up higher in the short term. But I pay more attention to things that are used and have industrial use. Copper's usage rate in industry is much higher than gold. In every industry, almost sooner or later, the things, products, services, and business models produced using that commodity become more valuable. Their added value is higher. Commodities only take a small place in it, and since human beings are always focused on efficiency and always interested in innovation, eventually the share of commodities in the total product tends to decrease.

For example, we experience this in computers. Personal computers used to use much more gold. It is now much reduced. Besides, microchips have become smaller, so there is less need for conductors. Also, technologies have changed and there is less need for gold. In other words, human beings can always discover new technology that will save us from commodity shortages. But since these things take a long time, I think there is an opportunity in the short term. Now a question for you. What is your favorite commodity? From where? Share below would be great. For example, I find uranium interesting. Because there is a fundamental issue brought by artificial intelligence and electrification. The demand for electricity is also increasing. In other words, the demand for electricity to be transmitted by copper wires is increasing. That's why uranium also interests me.

The information, comments and recommendations contained herein are not within the scope of investment consultancy. Investment consultancy services are provided within the framework of the investment consultancy agreement to be signed between brokerage firms, portfolio management companies, banks that do not accept deposits and customers. The comments in this article are only my personal comments and these comments may not be appropriate for your financial situation and risk return. For this reason, investments should not be made based on the information and comments in my articles.

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