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Today, you’ll hear from one of Nomi’s regular contributing editors, Lau Vegys. Lau has an extensive track record of investing in stocks, cryptocurrencies, and financial derivatives. He specializes in spotting megatrends in sectors like precious metals, mining, and tech.
Below, Lau homes in on one of the top five themes on Nomi’s radar: New Energy. And he shows us why this New Energy paradigm will fuel a rally in copper…
Copper is a remarkable metal.
It goes into just about everything we use today – from plumbing to power lines, computers to motors.
In fact, it’s in so many of the things we use daily that its price can act as a signal for what’s going on in the overall economy.
As such, it’s hardly a surprise that copper was one of the top performers of the “COVID recovery” in 2021. It hit an all-time high of $10,480 per tonne in May (red circle on the chart below).
Concerns over the impact of the new coronavirus variants have affected the commodities market as a whole in recent months. Yet, despite this, copper still gained 26% last year (red arrow on the chart above).
There are several reasons why the market is so bullish on this unique metal… and why we believe it will continue to soar in 2022 and beyond.
You see, copper is set to play a massive role in the New Energy revolution we’ve been telling you about. And as the world moves to a greener economy, it will need a whole lot of it to make this transition a reality.
Global Governments Are Committed to a Green Economy
Since mid-2020, global governments have spared no expense to spend their way out of the coronavirus crisis. And many are using this as a means to push the transition to a low-carbon economy.
The U.S. is a case in point.
In November 2021, President Biden signed the $1.2 trillion Bipartisan Infrastructure Law, or “Infrastructure Investment and Jobs Act,” into law.
With more than $100 billion earmarked for clean energy development and grid reliability, it aims to make the U.S. more resilient to climate change and create a clean power grid.
It also includes $7.5 billion for building out a robust electric vehicle (EV) charging infrastructure.
And the U.S. is not alone in its quest towards a Green Economy.
In 2021, global governments and businesses spent about $750 billion on clean energy technologies worldwide. That’s up 7% from the prior year.
This is impressive, but it remains far below what is required to limit climate change. That tells me there’s a lot more investment – public and private – to come over the next five years.
And whether it’s improving a power grid or incentivizing solar panel production, anything that will move the needle in governments’ efforts to decarbonize our economies will require copper. Lots of it.
Copper Is Vital for the New Energy Revolution
Let me give you some examples of how the shift to New Energy will drive demand for copper.
I already touched on EVs above. Currently, roughly 10% of new vehicles sold in the world’s major markets are electric. Bloomberg estimates that by 2030, that figure will have risen to about 50%.
With copper used extensively in EV batteries, wiring, and charging stations, EVs will play a vital role in future copper demand growth.
The global wind power buildout is another essential piece in copper’s story.
Right now, offshore wind is responsible for less than 0.5% of global electricity capacity. But annual offshore wind installations are expected to grow 13-fold by 2030. This will generate demand for up to 7 million tonnes of copper.
Meanwhile, many other renewable energy systems – such as solar, hydro, thermal, and air source heat pumps – use as much as 12 times more copper than traditional fossil fuel-powered systems.
This tells me that demand for copper will continue to grow through 2022 and beyond.
Perfect Setup for Copper Prices
But just as demand is set to soar… copper inventories are going in the opposite direction.
In 2021, copper inventories fell to multi-year lows. For example, last month, inventories in Shanghai Futures Exchange warehouses were at their lowest since June 2009.
There are significant supply disruptions, too. Just weeks ago, Chinese miner MMG threatened to end copper production at its Las Bambas mine in Peru, after months-long illegal road blockades had disrupted production.
The world’s ninth-largest copper mine had grappled with on-off protests since the operation’s 2015-16 ramp-up. Recent reports show that the blockades have been lifted, but tensions with the local community are likely to persist for some time.
The mining industry in Peru – the second-largest copper producer – faces an uphill battle to keep production levels steady under its new socialist president. During his election campaign last year, he specifically promoted the nationalization of the mining sector.
And in Chile, the world’s largest producer of copper, the newly elected leftist president is expected to tighten environmental rules around mining.
It remains to be seen if supply will stabilize. However, catching up with constantly rising demand will not be a swift process. Miners can’t just flip a switch and start production overnight. It takes time.
At any rate, the copper market hasn’t yet recovered from all the COVID-related mine shutdowns and slowdowns it experienced over the past two years.
It’s the perfect setup for copper prices.
Global inventories and supplies are falling just as all the signs are pointing towards increased demand. That’s why I believe the next few years will be huge for copper.
And now is the time to add some exposure to this underrated metal to your portfolio.
How to Play This Opportunity
So, how do you take advantage of this setup?
Copper is bulky. So unless you’re willing to pay hefty storage costs, buying the physical metal is probably not an option.
Instead, consider the United States Copper Index Fund ETF (CPER). It closely tracks the price of the metal, offering convenient exposure.
You can also invest in copper indirectly by purchasing companies that mine it. We’ll be sure to share our thoughts on how best to do that with subscribers when the time is right.
Contributing Editor, Inside Wall Street with Nomi Prins
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