Investing in Copper

Bold predictions from this underground metal...

Written by Jimmy Mengel
Posted June 7, 2022

Dear Outsider,

I recently took a leisurely walk through the Green Mount Cemetery in Baltimore, a few blocks from my office. It's a sprawling graveyard filled with some of Baltimore’s most famous — and infamous — residents.

It was established in 1839 and is one of America’s first “rural” cemeteries. As I strolled around the headstones, I noticed quite a few that stood out.

But the single most interesting one was a small, unmarked grave. Once I saw the sun shimmering on the dozens of pennies that covered it, I knew I had found the right place… 

booth grave


It was the grave of John Wilkes Booth, presidential assassin and one of America’s most notorious criminals. Every day visitors stack pennies, heads up, on his grave. It is said to help “lock the assassin in the ground.” 

That’s giving the humble penny quite a lot of credit, but to be fair, I haven’t seen Booth stalking the streets of Baltimore lately.

Of course, pennies used to be made of copper, known in some circles as the "Eternal Metal." But since 1982, they’ve been minted from 97.5% zinc with a pure copper coating that takes up the other 2.5%. Copper is simply too expensive to justify a $0.01 piece.

It’s a damn good thing they stopped when they did, because copper prices have exploded since then and are now riding all-time highs. In 1982, copper dipped to $0.60 a pound.

It just hit an all-time high of $4.90 a pound last month, and I believe it will continue to run higher this year and beyond.

Just last Thursday, copper prices jumped 5.2%. There are some good reasons for this…

For one, China has finally ended its two-month COVID lockdown, which means the supply of copper for industrial purposes will start ramping back up. China is the world’s largest consumer of refined copper, accounting for 54% of the total global copper consumption volume. 

Factories are back online for industries like electric vehicles, which require tremendous amounts of copper. According to Copper.org, hybrid electric vehicles contain approximately 85 pounds, plug-in hybrid electric vehicles use 132 pounds, and battery electric vehicles contain 183 pounds — per vehicle.

That’s a massive boon for the demand side of things.

But copper supply has taken a huge hit at the same time. Chile supplies a quarter of the world’s copper and has just announced that its copper production in April slid 10% year over year. 

In Peru, the world’s No. 2 copper producer, the industry is on fire — literally. After violent environmental protests broke out recently, it left MMG Ltd.’s Las Bambas copper mine and Southern Copper Corp.’s Los Chancas project in flames. 

Las Bambas is one of the world’s largest copper mines, and the protests have led MMG to halt operations since April 20. The unrest has already led Southern Copper to suspend operations for over 50 days, and this recent attack will only hinder plans to reopen.

If that weren’t enough, Russia’s war against Ukraine continues to disrupt supply chains.

There are a few easy ways to play this supply/demand disturbance that should continue for the rest of the year: You can invest in the miners that produce it from the depths of the Earth, or you can bet on the actual price of the metal going forward.

BHP Group Limited (NYSE: BHP) is the largest publicly traded copper producer in the world, with 1.72 million tonnes produced in 2020. The Australian miner also sports an impressive 10.38% dividend yield, a 52-week range of $51.88–$80.50, and an average daily trading volume of 4,178,244 shares.

U.S. miner Freeport-McMoRan (NYSE: FCX) produced 1.45 million tonnes the same year. FCX has a modest 1.44% dividend yield, a 52-week range of $30.02–$51.99, and an average daily trading volume of 18,003,395 shares.

If you don’t want to bet on one horse, you can bet on the The Global X Copper Miners ETF (COPX), which holds both of those companies in addition to 37 other copper stocks. COPX offers a 2.24% yield, a 52-week range of $32.88–$47.23, and an average daily trading volume of 797,693 shares.

The other way of investing in copper is on futures contracts that bet on the price of copper going up. It typically doesn’t see as high returns — or dividends — as the abovemining stocks do, but it is a pure play on the price of copper. The United States Copper Index Fund (CPER) is an ETF that tracks the daily changes of the SummerHaven Copper Index Total Return.

Like I mentioned, it’s not as lucrative (as you can tell by the small spread in the 52-week range of $24.51–$30.12), but if you’re bullish on short-term copper prices, it’s a nice tool in your belt. It's not meant as a long-term holding.

Speaking of short versus long term, copper is a cyclical commodity. While 2022 should continue to be a great year based on the current circumstances, the supply/demand situation should balance next year. RBC Capital analysts are expecting that exact scenario and have predicted prices falling to $3.75 a pound in 2023.

However, long-term prospects look very, very shiny. Goldman Sachs metals strategist Nicholas Snowdon released a report predicting a rise from $9,300 a tonne to $15,000 a tonne.

But he didn’t stop there…

Snowdon went on to foresee copper reaching $50,000–$100,000 a tonne! He bases that incredible prediction on the fact that while there are only 1.5 million tonnes of copper used today in EVs, charging infrastructure, and the entire renewable energy sector, by the end of the decade, that could be closer to 7 million tonnes.

When we look at the outlook for the copper market over the course of the next three, five, 10 years, what we see are essentially impossibly large deficits developing over that time frame. By the middle of this decade, we’re forecasting the largest ever deficit in the copper market. This market has such severe imbalances that they’re not resolvable at current price levels.

That’s the crux of the issue in the copper market. It’s just an impossibly tight future. At today’s price, there’s no fundamental adjustment underway that that can meaningfully solve what lies ahead.

While that seems like a wildly bullish picture, the fact remains that we’re going to need more copper in the years ahead, and you should certainly hold some in your portfolio.

But speaking of materials that are crucial to electric vehicles, there is one rare resource that every car company in the world will need to survive — and it’s NOT copper. It's not even lithium, platinum, cobalt, or nickel. In fact, you've probably never heard of it before.

However, it is absolutely critical to the entire industry going forward. Elon Musk himself said, "It’s the way all electric cars in the future will be made."

My colleague Luke Burgess just discovered a $1 company that just secured 100% of the rights to mine the largest reserve of this resource right here in the Western Hemisphere. The possibilities will be endless once this new battery becomes the industry standard.

Here's everything you need to know.

Godspeed,
jimmy-mengel-signature-fixed

Jimmy Mengel

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Jimmy is a managing editor for Outsider Club and the investment director of several personal finance advisories, The Crow's Nest, and The Adventure Capitalist For more on Jimmy, check out his editor's page.

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