Mining Stocks

Can Copper Maintain Momentum in 2021?

copper sector comes into bloom

Copper is flirting with an 8-year high after putting together one of its best years in a long time. Copper prices fell below that high of $3.70 per pound to about $3.60 towards the end of trading Friday. Many base metals are rising because of the ongoing inflationary boom and the promise of trillions in stimulus spending by the Biden Administration.

Copper is rising for other reasons worth noting, which like so many verticals thriving today, relate to the pandemic.

Freezer Buying Spree Spurs Copper

Apparently, according to research from First Quarter Finance, there is a decent amount of copper in every freezer.

“Compressors from small refrigerators contain about one pound of copper; large refrigerators compressors can have about two and a half pounds of copper.”

According to Forbes article, Freezer Rush Helps Drive Copper Towards A Record $10,000 A Ton,

“Citi, an investment bank, identified the freezer factor in its latest metals sector research which noted how strong copper demand in China had “singlehandedly propelled” the bank’s copper consumption tracking tool to levels normally associated with synchronized global growth.

“We have seen an 80% year-on-year increase in freezer output in China, potentially reflecting Covid-19 related fears over security of food supplies,” Citi said.”

While I bought an extra deep freezer after the pandemic began, people only have space for so many freezers. And with the ‘panic’ phase of the pandemic behind us, it’s doubtful copper will be able to rely on a ‘freezer rush’ in 2021. However, copper is seeing demand from sectors with far more staying power that have potential for sustained growth.

Copper Sector: The Green Angle

According to that same Forbes article,

“Copper’s use in a number of fast-growing environmentally-focused or “green” industries such as electric vehicles and renewable energy is piling pressure onto the price causing seasoned markets watchers to forecast the start of a commodity “super-cycle”.”

Renewables is where most copper enthusiasts expect the sustained and rising demand to come from in 2021. Easy to comprehend, when considering the Biden Administration’s focus.

Copper Phone Cases?

A Fast Company article contends,

“…copper is rising to the top due to its antimicrobial properties. You can now find everything from copper-infused face masks, clothing, and “nasal wands” to hospital equipment.

The latest product to get the copper treatment? The phone case. A startup called Aeris recently launched a copper-coated phone case that claims to kill 99.9% of microbes, including coronavirus.”

Silver also contains antimicrobial properties and has seen an increase in demand in 2020.

Copper Price Action: Where Next?

Copper has crested above $3.50 per pound, and bulls are looking for it to pierce $4 in 2021.

copper price crests above $3.50 per pound

Goldman Sachs with revenue of 36.55 billion USD in 2019 remains bullish into 2021. In a Kitco December 31, 2020 article, Top ten copper mines that stand to benefit in 2021, Goldman’s stance is confirmed:

“Its analysts say the current copper bull run could continue well into 2022, and the firm estimates that the metal is likely to hit $10,000 per tonne for only the second time in its history.”

Structural Bull Market for Copper Sector Intact

Goldman Metals strategist Nicholas Snowdon explains in the same article,

“This current price strength is not an irrational aberration, rather we view it as the first leg of a structural bull market in copper.”

When it comes to the world’s largest copper producers, look south. Peru and Chile are home to 8 of the top 10 copper mines in the world.

copper sector relies on ten largest producers in the world
source: https://www.kitco.com/news/2020-12-31/Top-ten-copper-mines-that-stand-to-benefit-in-2021.html

 

While I’ve visited Peru and Chile on mining expeditions over the past five years, one city stood out.

Antofagasta, Chile, which rests on the north coast, is a beautiful and wealthy region. The wealth is owed exclusively to the mining sector. Marianela Jarroud wrote in 2015,

“Official figures indicate that this region of 625,000 people has an average per capita income of 37,205 dollars a year, nearly eight times the average per capita income of the southern region of Araucanía, which is just 4,500 dollars. The national average in this country of 17.6 million people is 23,165 dollars.”

Driving out to the Atacama desert, the driest place on earth, this region’s readily available infrastructure becomes apparent. Chile will remain a copper powerhouse for years to come as the government strongly supports the sector, and mining is embedded in the culture.

The copper sector has many factors leading it higher, but few are greater than the ongoing debasement of fiat currencies globally. Lack of exploration and new mines coming online and the shift to clean energy will require untold copper supply in the 2020s. Finally, copper, like so many metals, appears poised for higher prices in 2021 and beyond.


Pinnacle Stock Challenge
Alexander Smith

Recent Articles