There’s No Green Revolution Without Copper

Dear Retail Investor,

What do California, Quebec and Great Britain have in common?

They’ve all banned the sale of new gas-powered cars.

While the bans don’t take effect until 2030 in Great Britain, and 2035 in Quebec and California, the trend is clear – the days of the internal combustion engine are numbered.

  • President Joe Biden is under pressure from the US Senate to set a date banning the sale of new gas-powered vehicles
  • The European Union’s environment ministers struck a deal in 2020 to make the bloc’s 2050 net zero emissions target legally binding
  • China has stated it plans to ban the sale of gas- and diesel-powered cars in the future, though it has yet to confirm when
  • India’s asked the country’s gas-powered scooter and motorbike makers to develop plans to switch to electric vehicles
  • In 2018, German cities started to introduce bans on older diesel trucks

Obviously, the trend to ban gas- and diesel-powered vehicles bodes well for the electric vehicle (EV) industry.

So it’s no surprise that the main metals that comprise EV batteries – lithium, nickel and cobalt – are in a bull market.

But there’s another metal critical to the EV industry that’s been on a tear as well – copper.

It’s as important to the EV industry as lithium, nickel and cobalt… maybe even more so.

In fact, the entire green revolution is dependent on copper.

I’ll get into that in more detail shortly.

First, though, let’s take a good hard look at some facts about copper that can help you make money.

EV makers have overlooked the importance of copper… and they’re going to pay dearly for the oversight

The automobile industry is getting serious about shifting from internal combustion engines to EVs.

  • General Motors has set a 2035 target for phasing out gasoline- and diesel-powered vehicles
  • The world’s biggest diesel engine factory in France is switching to making electric motors only
  • At least 20 car models will no longer offer diesel versions in 2021, including Nissan’s Micra, Renault’s Scenic and Honda’s Civic
  • Ten auto manufacturers, including Jaguar, Bentley and Volkswagen, have promised to exclusively make EVs in coming years
  • About 100 pure electric EV models are set to debut by the end of 2024 (including some SUVs and pickups)

Through the effort to transition to EVs, automakers have developed engines that can easily last more than a million miles.

But they haven’t given enough thought to the EV batteries that will power those engines.

Apparently they assumed they could just order all the batteries they need from battery manufacturers and – presto! – they’d be all set.

And battery manufacturers apparently assumed all they needed to do was to build gigafactories to meet this demand.

But Houston, we have a problem – copper

The EV industry demand for copper is mind-boggling.

For example, 1,000 EV batteries require about 83 metric tonnes (MT) of copper (compare that to 23 MT for conventional vehicles).

To put this in perspective, 30,000 EV batteries can consume as much copper as a skyscraper.

And just to transition, a third of the global passenger fleet from internal combustion engines to EVs would require over 300 million EV batteries.

That amounts to 20 million MT of copper.

That’s almost as much copper as the world currently consumes per year!

We’re in a budding copper bull market that should continue to rise

Even though copper’s shot up more than 100% in the last year or so (from $5,165/MT on April 27, 2020 to $10,465/MT on May 19, 2021) prices are poised to go much higher. 

I’m not alone in this assessment.

In fact, Goldman Sachs is forecasting a price of $15,000/MT by 2025 – a rise of over 50%.

On May 4th, Bank of America said in a note the world risks “running out of copper” amid dwindling supply and rising demand, and copper prices could rise to US $20,000/MT by 2025.

One reason? The push to transition the world’s energy from fossil fuels to renewables requires copper – and lots of it. 

But the world has yet to grasp just how important copper is to this transition.

No copper… no green revolution

Copper is integral to all things green… everything from solar panels to wind turbines.

And transitioning to renewables from fossil fuel power plants will require massive amounts of the red metal.

Consider that alternative energy sources require 5 times more copper than their conventional counterparts.

For example, wind turbines require 3.6 MT of copper per megawatt (MW) of output, while photovoltaic cells require 4 or 5 MT per MW.

That means the push away from fossil fuels is likely to put a serious strain on worldwide copper supplies.

At the same time, traditional demand for copper is also increasing.

Take housing…

Housing construction requires vast amounts of copper

The U.S. construction industry can’t keep up with demand for new homes.

According to a new Freddie Mac analysis, the American housing market is 3.8 million single-family homes short of what’s needed to meet current demand.

That bodes well for copper bulls, as the metal’s an integral part of critical home infrastructure and the appliances you’ll find in most homes:

  • The average single-family home uses 439 pounds of copper… which represents 1.6 billion pounds of the metal needed for future construction
  • The average refrigerator contains 5 pounds of copper
  • A typical air conditioner contains 52 pounds of copper
  • A desktop PC has about 5 pounds of copper
  • Heaters contain about 48 pounds of copper

And because of copper’s high degree of thermal conductivity, hot water tanks are lined with copper plating, as are household heating elements like stoves and electric kettles.

Then there’s plumbing, the most common household use for copper.

(Yes, the use of cheaper plastic plumbing is on the rise, but over 85% of the homes in the U.S. use copper plumbing systems).

Copper’s use in home construction and household items doesn’t stop there.

It’s also in all the brass details you’ll find in modern homes, like doorknobs and handrails (brass is an alloy of zinc and copper).

Furniture and decorative flourishes like bronze chandeliers contain copper, too.

Then there’s copper cookware, which is prized by chefs around the world because it heats up evenly, preventing heat spots.

So where does the current supply of copper come from?

The top producer is Chile, which produces 28% of global mined copper tonnage.

Peru, China, the U.S, and the Democratic Republic of Congo are the next biggest producers (in that order).

Unfortunately, the global mining industry has been starved of capital for about the last 20 years.

Untold billions of investment dollars have gone into broadband… the Internet… the cloud… wireless… telecommunications…

Yet mining for the metals integral to these technologies hasn’t kept pace.

Making matters worse were the lockdowns and quarantine measures implemented in the wake of the COVID-19 pandemic.

So what was supposed to be a year of mined supply growth (2020) turned out to be a second consecutive year of zero growth.

Bottom line – there’s a supply-demand imbalance in the copper space that’s almost certainly going to get worse in the coming years.

And that means higher copper prices are practically baked in the cake.

How to play the budding bull market in copper

An obvious play is to buy blue chip copper mining companies.

These include the BHP group (NYSE: BHP), Rio Tinto (NYSE: RIO), Vale (NYSE: VALE), and Glencore (OTCMKTS: GLNCY).

Despite the fact that they’re all way up over the last year, there’s a good chance they’ll continue marching higher in the face of exploding copper demand.

You could also invest in two copper exchange traded funds – the United States Copper Index Fund (CPER) and the iPath Series B Bloomberg Copper Subindex Total Return (JJC).

But the real money in the copper bull market will be made through little-known junior miners working to unearth new deposits.

Here at Dear Retail, we have our eyes on a couple of potential plays that could blow away the gains I just alluded to.

We’re close to releasing information about one miner in particular we believe could provide huge gains.

We’ll be sending you that report in the coming few weeks.

Until next time,

 

Doug Fogel

Contributing Editor, Dear Retail

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