The long-term prospects for copper generated a lot of discussion in the investment community towards the end of 2022. The price of copper increased by 7.5% on 4 November, marking its highest increase since 2009. That said, copper futures were trading almost 17% lower year to date (as of mid-December), and prices continue to be pressured by myriad economic factors. Consequently, copper as a short-term investment may not look like the most attractive of propositions.
However, this could change in the next ten years. As the effects of climate change become increasingly visible, world leaders are ramping up their commitments to establishing net-zero economies by the half-century. Alongside some other worldwide trends, this should contribute to the demand for copper doubling by 2035 to match the 50 million tonnes that the world will need annually to invest in electric vehicles (EVs) and sustainable energy production.
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Here at HYCM, we believe that retail investment brokers, platforms and investors can be catalysts for what many in the investment world are calling the ‘green revolution’. With the shift to net zero under way and the global economies grappling with recessions, some of the short-term obstacles to copper price performance could be lifted by retail investors – but what barriers stand in the way?
Short-term pressure on copper prices
Copper has a reputation as a thermometer for global economic activity, so the challenging economic climate that the ‘king of green metals’ finds itself in is playing a significant role in the current drag on prices.
Inflation, now at 11.1%, limits the extent to which large corporations and manufacturing industries can commit to new products or projects as their spending power is diminished, pushing down demand.
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Simultaneously, as central banks try to bring inflation under control by hiking interest rates, the higher cost of borrowing has slowed global economic activity to a greater extent, tempting many economies to enter a recession in the coming months. At the same time, the US dollar remains strong, making copper – as a dollar-denominated metal – more expensive for those with holdings in non-US dollar currencies. In turn, this is having a detrimental effect on investor sentiment, which has a negative knock-on effect on demand.
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By GlobalDataFollowing recent protests, it looks as though the zero-Covid policy in China, the world’s largest importer of copper, is being relaxed. However, the stringent lockdown measures that have been in place for the past few years have been a major contributing factor to the dip in demand for copper as economic activity slowed in the country. Perhaps recent signals from Beijing could turn the tide on this trend.
Finally, it is important to note that despite demand going down, production has been going up – in 2023, production should increase by 26 million tonnes (t). As supply increases and demand falls, there could be a copper surplus of up to 691,000t, which will place further limitations on the price of copper.
Looking ahead at the future of copper
Looking past the current recessionary environment, there are some macroeconomic trends that could positively impact copper in the long term. Indeed, these trends should be of some encouragement to copper investors.
For instance, despite the limitations on demand for copper that the looming recession will cause, the global recovery from said recession should have a positive impact on copper in the future. With economies returning to growth, so too will economic activity. In turn, commodities – such as copper – tend to get a boost as corporations and manufacturers take on new projects and increase the demand for raw materials.
The transition to net zero should also have a positive effect on copper, due to the metal’s proficiency for conducting electricity. As a crucial element in the production of EVs and clean energy systems, experts suggest that the world will need to use more copper in the next two decades than it has in the past 13 if it is to make the transition to net zero a successful venture. This is hardly surprising; EVs require two-and-a-half times more copper than petrol or diesel cars, while renewable energy production needs five times more copper than fossil fuel-generated energy. With this in mind, copper should be supported in the coming decades.
That said, the global transition to net zero will require investors to adjust their focus to more sustainable practices. Of course, the global decarbonisation effort has accelerated significantly in the past decade, which has encouraged many investors to reassess their strategies. As such, there is now a greater concentration of investments in the production, storage and transmission of renewable energy that will be supporting copper despite the current economic climate. For many, investing in the commodity is a cheap way of exposing themselves to the shift to net zero.
In this sense, investors will have a central role to play in the shift towards sustainability. With the GameStop short squeeze in mind, already we have seen the influence that retail and purpose-driven investors can now have on the markets, and this trend will only become more apparent. Therefore, by applying pressure to companies, manufacturing processes and the markets, with a growing number of government commitments to cut emissions, investors can be catalysts for the ‘green revolution’.
We recognise that at HYCM. As such, our investors have access to a wealth of stocks and commodities – such as copper and Tesla – at their disposal that will accelerate this transition. That said, in regard to Tesla, there are some concerns about the EV company’s share of the market. In the third quarter of 2021, for example, Tesla made up 75% of US EV sales. A year on, the company constituted just 64% of sales, with many arguing that CEO Elon Musk’s Twitter buyout has harmed Tesla’s brand.
In conclusion, it is evident that copper has been under significant pressure in the past few months as the economic outlook has deteriorated. However, looking past the current downturn, copper’s prospects are actually rather promising. The demand for copper is expected to rise sharply as the globe moves toward net-zero energy production and the investment world pushes investors and businesses toward more sustainable practices and products. As a result, the commodity should be a very appealing investment prospect in the long run.
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