Copper. Essential to All Things Energy.

Native copper. Wiki Commons.

Copper. Essential to All Things Energy.
Ways to Profit from a Copper Rally, While Protecting Ourselves from Volatility.
 
Copper is a great conductor, and is essential to anything powered by electricity. This metal is fundamental to electric vehicles, electric transmission, solar, wind and construction. At the same time, economic headwinds can wreak havoc on demand – forcing a delay in planned projects. The solar industry is struggling. The wind industry has been stalled out by the high cost of financing projects, supply chain disruptions and inflation. Copper mining giants like Freeport-McMoran and Rio Tinto have seen their share prices drop by over -25% since the highs of early 2022.
 
How will all of this affect copper prices, copper companies and the top-producing countries in 2024 and 2025?
 
Here are the areas we’ll cover in this blog.
 
Copper: The New Oil
Prices Could Rise Over the Next 2 Years
Companies
Funds and Portfolio Diversification
Bottom Line
 
And here is more information on each point.
 
Copper: The New Oil
Copper has been dubbed the New Oil by Goldman Sachs because the metal is key to the clean energy revolution. Copper is a great conductor of electricity and is essential to everything from power lines to electric vehicles and batteries. However, when economies hit headwinds, copper demand plummets, as do prices. In recoveries, the essential metal can soar during the rebuilding and expansion phase.
 
Prices Could Rise Over the Next 2 Years
Demand is expected to remain stronger than supply can keep up this year, partly as a result of a planned closure at First Quantum's Cobre Panama mine. At the same time, weakening fundamentals for construction and the auto industry could temper the need for copper. As a result of these dynamics, many analysts have muted expectations for copper prices, though the consensus is that prices could rise by almost 10% by 2025.

Prices are currently at $3.70/pound. Some analysts have forecasted that prices could rise as high as $6.72/pound by 2025. One of the biggest question marks is China. China has become the largest consumer and exporter of electric vehicles in the world, and is projected to have 4.2% GDP growth this year, as compared to just 1.6% or less in the U.S., Canada and Europe (source: IMF). The major copper mining companies have an Asian hub to address the largest market in the world.

Companies
Freeport-McMoran, Southern Copper, Rio Tinto, Anglo American and BHP Billiton are well-known mining companies with large reserves of copper. McEwen Copper is a microcap stock with a large reserve in Argentina that is being developed with funding from Rio Tinto and Stellantis, alongside one of the largest individual shareholders, Chairman and Chief Owner Rob McEwen. All of these companies will benefit from a rise in copper prices, and all have suffered as the price has pulled back from a high of $4.25/pound since January of 2023.
 
Many of the companies are still sporting expensive price-earnings ratios – largely as increased costs have slashed profits. Freeport-McMoran saw their annual net profit plunge from $3.47 billion in 2022 to just $1.85 billion in 2023.
 
If you’d like a Copper Stock Report Card, email [email protected].
 
Funds and Portfolio Diversification
Chile is the #1 producer of copper, with Peru in the 2nd place position. One of the benefits of purchasing a fund in a copper-rich country is that you have a portfolio of companies, instead of betting the farm on just one. Owning a fund based out of Peru could also offer country diversification to our portfolios, while also benefitting from a copper rally.
 
We’ve chosen Peru over Chile in our sample portfolios because Peru’s GDP growth in 2024 is expected to be much higher than Chile’s, at 2.7% vs. 1.6%, respectively. Chile’s copper mining is nationalized. Copper is the top export of Peru. A rally in prices will benefit the country. If prices sink, the country (and fund) will be negatively impacted. For this reason (and others), we’re suggesting a dollar-cost-averaging approach to adding an age-appropriate slice of a Peruvian fund (such as iShares’ EPU). An added benefit of a fund like EPU is that the dividend is 4.3% -- easily double that of most U.S. based value funds.     
 
You can learn more about our pie chart investing with annual rebalancing at our next online Spring Financial Freedom Retreat.
 
Bottom Line
The U.S. economy is expected to slow down in 2024, from 2.5% in 2023 to 1.5%. Inflation and high interest rates are impacting construction and EV sales (all car sales) in a negative way. While interest rates might be cut in 2024, the Fed Fund rate is still expected to remain elevated in the 4.6% range. So far, analysts are anticipating that constrained supply will keep copper prices buoyant – even rising by almost 10% by 2025. Of course, economies are dynamic, which is why it is always important to have an age-appropriate, diversified plan in place and to rebalance at least once a year. (Due to elevated equity prices, economic uncertainty and other risk factors this year, we're overweighting an additional 10-20% safe.)
 
 
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