Tap new records the copper price, driven by renewable energy, electric cars and artificial intelligence (AI). Prices of the commodity have soared since the start of this year, up 29% year-on-year.
Today, copper futures on the COMEX traded at $5 a pound, marking the highest level since March 2022, when the price of the base metal hit an all-time high. And according to Bank of America forecasts, copper demand from electric vehicles and the transportation sector in general is expected to increase about 5% this year.
Copper demand: the key factors
There demand for copper it is widely considered an indicator of the health of the economy, and the metal is critical to the energy transition ecosystem. It is also integral to the production of electric vehicles, power grids and wind turbines, especially as the global economy electrifies.
Copper is also a key material for cables used in data centers, the growth of which has fueled demand for the red metal, especially as theartificial intelligence generates a greater need for data centers.
Data centers rely on copper for several electrical applications: electrical connectors, busbars and power cables. The International Energy Agency predicts that energy demand from data centers will more than double, from 460 TWh in 2022 to more than 1000 terawatt hours (TWh) in 2026.
In addition to the energy transition, the AI boom is accelerating demand for copper, particularly for data center construction. According to Reuters, AI could increase copper demand by a million tons by 2030. Bank of America expects the combination of supply shortages and demand growth to push copper prices higher to $5.44 per pound by 2026, a further 11% increase from the current price.
Meanwhile, the copper mining industry is poised to slow down next year. A report from Goldman Sachs indicates that investment in mining companies in 2022 was almost 50% lower than spending in 2010. Disruptions at copper mines, which often occur in Latin America, could lead to a rise in the deficit in copper supply starting in 2024.
How to invest in copper
Considering these data it is clear how copper continues to play a key role in the global economy and human development.
This will be even more true as the energy transition from fossil fuels to renewable energy takes hold.
“Copper is truly the commodity of the future and particularly the future of electrification,” said Jason Crawshaw, portfolio manager at investment firm Polaris Capital Management.
Long used in plumbing, electronics and the electrical systems of cars, homes and businesses, today more wind and solar farms and the infrastructure needed to connect them to the grid, not to mention electric vehicles, are expected to generate a change in copper demand. The Chinese economy plays a fundamental role as it is the largest consumer of copper in the world due to its insatiable need to build its own infrastructure and produce finished products for export.
Investors who want to bet on copper will have to pay attention not only to the performance of the global economy, but also to that of Chinafor example of its enormous real estate sector.
But like any investment, copper investment also presents risks and advantages. But what are the pros and cons of investing in copper?
The advantages
Among the pros we include the rise in prices: if, as expected, supply shortages occur, it means that the price of copper will probably rise in the long term. Then investing in the red metal promises portfolio diversification, providing an investment that will track higher when the economy is doing well, or is expected to do well. Copper also serves as an inflation hedge. Because it tends to do well with the economy, it can provide a buffer against rising prices of consumer goods, which might otherwise eat into spending power.
The disadvantages
Among the cons is volatility. One of the main disadvantages of investing in copper is its volatility. Not only is copper subject to volatility resulting from global macroeconomic cycles, but it also reacts to other news, such as reports on the Chinese economy or producers who may mine more or less metal than expected in a given quarter. Furthermore, investing in copper derivatives, such as futures, can be more complicated.
