Copper surges to decade high- is this just the beginning?

Copper – a barometer of the global economy, has climbed to the highest in a decade over the past days.

The price of the said industrial metal has been boosted by; an improved economic outlook as the global vaccine rollout gathered pace and a substantial economic stimulus – further lifting hopes of a robust recovery, a weakening U.S. dollar, and a shift towards cleaner energy.

Renewed demand comes at a time when the metal is set to experience a significant supply crunch as mine production is unlikely to keep up with the growing global appetite. The most recent supply disruption, threatening near-term supplies, comes after Chilean Port Union (UPCH) announced that it would carry out a progressive stoppage of activities in response to President Sebastián Piñera's move to block a bill that would have allowed workers to make a third round of early withdrawals from their pension funds.

Chile is responsible for a quarter of the world's copper mine production.

The metal's integral role in the green-energy transition is further fanning expectations that the rally will possibly be long-lived. Countries worldwide are at present rolling out more aggressive climate targets.

Role of Copper in de-carbonisation

Adding to the increased demand stemming from a global economic recovery is the shift towards green energy and de-carbonisation. Copper, an industrial metal with very high thermal and electrical conductivity, reduces CO2 emissions and lowers the energy needed to produce electricity.

Among the metal's several industrial uses, Copper is notably found in:

Renewable Energy: Due to its exceptional electrical and thermal conductivity, and high resistance to corrosion, Copper is a critical component in solar energy systems. Copper is also vital to the electrical generators, connections, and protective grounding systems of wind energy technologies.

Electric Vehicles (EVs): Electric vehicles (EVs) grew significantly over the past decade, underpinned by supportive policies and technological advances. Emission standards enforced prompted innovation and altered production, while incentives introduced by governments and a change in consumer trends – in favour of a greener environment, buoyed consumer demand.

Although, to date, EVs make up a relatively small share of the global automotive market, this shall undoubtedly change in the foreseeable future. Given that Copper is a major component in EVs, used in; electric motors, batteries, inverters, wiring, and charging stations, the said industrial metal shall undoubtedly benefit.

Green Buildings: Cities are expanding at an unprecedented rate. The rapid development undoubtedly brings with it challenges, and many of the solutions are copper-based technologies. As a durable and sustainable metal with long service life and full recyclability, Copper plays an integral role in the wiring, plumbing, heating and cooling, lighting and roofing of such green buildings.

A global energy revolution

An energy revolution is rolling out on a global scale. As the world economy is on track for a low-carbon and sustainability-focused growth mode, an increasing number of nations worldwide are adopting clean energy as a priority for their energy strategies.

Indeed, the U.S. under Biden's administration and China are at the forefront of this energy revolution.

In his first few weeks in office, U.S. President Joe Biden sent a clear message to the world: the U.S. is serious about climate change. On his inauguration day, Biden re-joined the Paris Agreement on climate change and shortly after made increasing the use of EVs a top priority, pledging to spend billions of dollars. Affirming his intentions, President Biden has, only recently, in a virtual Climate Summit, promised to slash greenhouse gas emissions in half by 2030 – an ambitious target set to combat climate change aggressively. China, the world's biggest emitter, vowed to reach peak emissions by 2030 and be carbon neutral by 2060. During the summit, China's President Xi Jinping repeated the country's previous commitments and emphasised green development and multilateralism to reduce global emissions.

While supply disruptions were possibly behind the most recent surge, the increased demand consequent to an improved economic outlook and clean energy transition have certainly played a role.

Albeit demand stemming from stimulus may in short to medium-term possibly subside, the green-energy transition shall continue to support demand and perhaps dictate the path going forward. This, ultimately, at the benefit of Copper.

Disclaimer: This article was written by Christopher Cutajar, Credit Analyst at Calamatta Cuschieri. The article is issued by Calamatta Cuschieri Investment Services Ltd and is licensed to conduct investment services business under the Investments Services Act by the MFSA and is also registered as a Tied Insurance Intermediary under the Insurance Distribution Act 2018.

For more information visit https://cc.com.mt/. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.