Copper Prices Cross $10,000 Per Ton In Q2 – Is Copper Entering A New Supercycle?
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July 29, 2024 09:00 AM Eastern Daylight Time
By Kyle Anthony, Benzinga
Copper’s exceptional electrical conductivity and contribution to energy efficiency make it a critical resource. As global economies accelerate their clean energy activities, the importance of copper has become even more apparent against a backdrop of supply chains restricted by geopolitical events, with no viable substitutes that can fully replace the metal’s capabilities. For investors, this presents an opportunity to gain exposure to a critical resource that could be poised to continue rising in economic significance over time.
Copper Is Unique
As the quintessential metal for electrical conductivity, copper is used in every electrical grid, power source and electronic product. As a major shift to clean energy is underway globally, copper is used in substantive quantities for the technology behind wind, solar, geothermal and nuclear energy, and demand is increasing.
Furthermore, its broad market demand and versatility in use across many industries have historically positioned its price as a gauge of the global economy. Copper’s role as an economic bellwether is well-established, with its price historically rising as business conditions improve. Though the current interest rate environment is above the historical average, past trends suggest that rate reductions in a non-recessionary environment often lead to higher commodity prices, with copper being the commodity that has benefited the most in such scenarios – adding to its potential as an investment opportunity.
Current Market Trends Driving Copper Prices Upwards
Recently, copper prices passed the $10,000 per ton mark, propelled by projections of tightening global supplies and heightened demand from the electric vehicle and power sectors, which offset weakening demand from China.
Reported economic insight from Sprott suggests copper may be entering a supercycle, which is defined as a sustained period of expansion, usually driven by robust growth in demand for products and services. Economic supercycles tend to produce strong, sustained demand for raw and manufactured materials, such as metals and plastic, that exceeds what commodity producers can supply. Supercycles, which are also good for stock prices, are often associated with long-term periods of growth for the commodity markets.
Copper is a predominantly long-cycle commodity - the process from discovery to production is lengthy, averaging 16.5 years. This long lead time for the majority of copper supply, combined with the mining sector’s resistance toward new project capital expenditures, leaves the copper market in a precarious position regarding securing the necessary supply to meet expected future demand.
Simply put, with demand for copper growing, there could be significant price appreciation if producers are unable to provide sufficient supply in the medium to long term. The miners of copper could also see long-term growth potential.
Gaining Exposure To Copper
Both the Sprott Copper Miners ETF (NASDAQ: COPP) and Sprott Junior Copper Miners ETF (NASDAQ: COPJ) provide pure-play exposure to a broad range of copper miners positioned to capitalize on the increased demand for copper and its usage in electrification.
Though both funds focus on the growth potential of copper miners, COPP provides comprehensive exposure to mining companies across the large, mid- and small-capitalization spectrum. In contrast, COPJ predominantly focuses on small copper miners, with the potential for significant revenue and asset growth.
Copper is a critical material in meeting global energy requirements and building clean energy infrastructure, and it and its miners may offer long-term investment potential.
Earlier this month, Sprott also launched an at-the-market equity program to issue up to an additional $500 million of trust units via its Sprott Physical Copper Trust (TSX: COP.UN), which CEO John Ciampaglia says is the world’s first physical copper investment vehicle. The Sprott Physical Copper Trust is a closed-ended trust created in June 2024 to invest and hold all of its assets in physical copper metal.
Featured photo by Ra Dragon on Unsplash.
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