Copper to boom in 2021?
Is copper ready to rebound and begin a period of price appreciation going into 2021? The pandemic of 2020 has driven the price of copper down as economies across the world shut down. Copper prices have always been heavily tied the overall state of the economy, so it’s lower price should come as no surprise. In order for copper to boom we need to see a change in the fortunes of economies in a recovery for 2021.
Could the opening up of economies and the more positive outlook for vaccines be the spark for copper to boom in 2021? The close correlation between the general state of the economy and copper could make this commodity one to watch.
China’s Rebound and Growth
Like it or not the price of copper is very heavily influenced by the state of the Chinese economy. Demand for copper from China accounts for over 50% of global imports. Therefore, a rebound in the Chinese economy will have a huge impact on where copper ends up. Should China’s rebound from the pandemic continue into next year then copper is likely to see an uptick in demand.
EV’s and Green Energy
Copper plays a huge and largely unrivalled role in electrification. This is likely to become ever more important as countries transition to new greener energy sources. It is copper’s place at the heart of these green technologies that will seen it benefit form the ‘Green Revolution’. For instance, compared with the conventional combustion vehicle, EV’s use significantly more copper in their construction. As much as 80% more copper is needed in an electric vehicle compared to a combustion engine vehicle.
Countries across the world are racing to become carbon neutral by switching to greener energy solutions. Wind power alone requires enormous amounts of copper, with wind farms requiring millions of tonnes for single farms. The Copper Alliance states that ‘copper content per installed wind turbine is 2.5–6.4 tonnes per megawatt’. The demand for copper from solar panels is equally significant. All of which points to copper demand soaring at some point in the future. Governements and private comapanies green initiatives continue to add fuel to the flames for copper to boom.
As the pandemic inevitably comes to a conclusion so too will the economic lock downs that have crippled copper prices. With that comes the need to stimulate the economy, bring back economic growth and increase job numbers. As a result, both the US and the UK have big plans in terms of building back the economy through infrastructure projects. The Biden administration’s ‘Build Back Better’ agenda will see huge investment in green infrastructure and transportation network upgrades.
By the same token, UK PM Boris Johnson too has major plans to build the UK out of economic turmoil. Boris has issued a statement announcing that he wants the UK ‘to build our way back to health’. Consequently, the UK’s plan includes a huge investment in offshore wind farms to power every home in the UK by 2030. The significance of all this is that demand for copper is likely to accelerate as early as 2021. Such building projects are very copper intensive and will increase demand in the copper market.
Emerging Middle Class
The emergence of a new middle class in India and China could trigger a boom in copper. Research shows that 161 million people will be added to India’s middle and high middle-income classes. To put it into perspective, that equates to almost half the population of the US. That’s 161 million new consumers entering the market for goods such as smart phones, washing machines, electric vehicles etc. This could all add up to an increased demand for products that rely heavily on copper.
By the same token, China, Africa and South East Asia all have growing middle classes with the same desire for consumer goods. Urbanisation in the emerging markets driven by the burgeoning middleclass gives hope for a sustained positive demand for copper over the long term. Construction, electrification, consumer products, white goods and renewable energy are areas of exponential growth in these up and coming urban areas. All of which is good news for those betting on increased demand for copper.
Copper to Boom in 2021? Final Thoughts
My own view is that copper does have a number of tail winds both in the short and longer term. A post pandemic recovery could provide the catalyst for a 2021 boom time for copper. However, this timescale may be too optimistic depending on how well the world leaders continue to react to the ongoing health crisis. China’s recovery and construction projects to kick start economies in the US and UK may need more time to get into full swing. I do believe that current copper prices (November 2020) do have the potential to increase. Longer term the future for copper appears positive. EV’s, green energy, infrastructure projects and an ever-growing global middle class provide real strength to the bull case for copper. I personally hold a small position in a copper mining stock, putting to the test my own bullish stance on copper.