Editor’s note: Today, we’re introducing you to the newest member of the Chaikin Analytics team…
Joe Austin just joined our team as a senior analyst. Before that, he spent four decades in the financial-services industry…
Joe began his Wall Street career as a research analyst for the technology sector in 1984. He also served as a senior portfolio manager on a more than $10 billion value equity product and a $80 million long-short science and tech hedge fund. And he provided research coverage of the tech sector for a $5 billion hedge fund.
In the second half of his career, Joe moved into marketing and business development for alternative asset managers. In this role, his strategies included global long-short equity, distressed debt and activist equity, and a natural resource-focused private equity fund.
Joe has worked with all sorts of investors in his long career – including endowments, foundations, pension funds, investment consultants, and some of the country’s wealthiest and most prominent families.
And now, Chaikin Analytics founder Marc Chaikin brought Joe on board to share his knowledge with individual investors like you. We’re excited to share insights from Joe here at Chaikin Analytics – including his first essay today…
A new crime wave is sweeping across the U.S…
Thieves are robbing urban infrastructure for copper.
They’re removing streetlamps and stealing the wires, leaving highways and bridges dark.
And they’re cutting fire hydrants off their bases to get to the copper material inside… leaving entire neighborhoods without emergency water.
That’s not all…
Thieves are even raiding cemeteries for memorial statues and plaques made from copper.
It comes down to high copper prices. And as I’ll explain today, this issue isn’t going away…
Copper prices have been rising in recent years. In fact, over the past five years, they’re up about 54%.
Meanwhile, consumers of copper are already worried about shortages. And there could be major struggles over supply ahead…
Keep in mind that new mines take about 18 years on average to start production.
Chances of some new, big sources of supply becoming available are remote. That means a tight market, if not worse, for the foreseeable future.
And copper is widely used. It’s in houses, cars, electronics, and much more.
The International Copper Study Group (“ICSG”) says the world will consume around 27 million metric tons of copper this year. That’s up about 2% from 2023.
Right now, supply and demand aren’t far out of balance. But farther out, things get tricky…
According to the International Energy Agency (“IEA”), the supply of copper will peak sometime in the next two years. Then, it will start to decline.
That means big gaps going forward. By 2035, the IEA believes that gap could be around 7 million metric tons. That’s about a third of the forecast output for that year.
For decades, copper demand grew and fell along with the economy. The metal has even been called “Doctor Copper” since it’s historically a good measure of economic health.
But that all started changing about 10 years ago…
Across the globe, countries were thinking harder about reducing dependency on fossil fuels.
Demand for copper accelerated. Copper’s previously cyclical growth became steady growth. And that growth looks even more steady going forward.
One of the biggest drivers is “green” energy. These technologies use a lot of copper…
For example, electric cars contain between 3 and 5 times the copper as gas-engine cars. To generate a megawatt of power, solar and wind power plants take anywhere from 4 to 6 times as much copper as their fossil fuel-based counterparts.
In fact, the chief operating officer of copper giant Rio Tinto (RIO) thinks that green energy will account for about 25% of total copper demand by 2050.
Consider the power grids, too…
They carry electricity from producer to consumer. But across the globe, they’ve suffered from decades of under-investment.
Many power grids are unreliable today. They’re trying to carry far more electricity than they were ever intended to.
Grid upgrades are critical. And they’ll need to happen sooner rather than later.
Upgrading and expanding the power grid will take a lot of copper. According to the IEA, copper demand for grid lines is expected to more than double in the next decade-plus.
Put simply, grid upgrades and expansion will account for massive demand.
On the supply side, the world is already producing pretty much all we can annually. Copper is a highly developed resource, so we also have a decent idea of what’s left in the ground.
By 2040, the available supply of copper will be roughly two-thirds of what we produce today. But by then, the demand for copper will have soared far higher than where it is today.
Half of that increase comes from economic growth. The other half comes from grid investment and green-energy expansion.
There’s a wild card, too…
I’m talking about China.
Since 2000, the country’s share of global copper consumption has soared. Specifically, it’s up from a single-digit percentage back then to more than half of all consumption today.
Meanwhile, Chinese manufacturing has been lower overall for the past couple of years. If it bounces back, an equilibrium in copper today could turn into a deficit sooner than we think.
Putting it all together, copper demand is set to take off in the years ahead.
And from an investing standpoint, we can’t ask for a better outlook…
Amid higher demand for copper, I’ve got my eye on the United States Copper Index Fund (CPER). Unlike other copper-themed exchange-traded funds (“ETFs”), CPER tracks the price of copper through the futures market.
Good investing,
Joe Austin
