You remember the two oil shocks, don’t you? The endless lines at gas stations, soaring prices, and paying close attention to OPEC’s every murmur?
Now we are about to get the 2020s, environmentally friendly, decarbonizing economy version: the copper shock.
For, copper is about to become the new oil.
The causes of the coming supply crunch for the red metal are manyfold.
If you take all of the commitments to green energy made by the Paris Climate Accord, which the US just reentered, they amount to demand for copper amount to about ten times current world production.
Oops, nobody thought of that.
Copper is needed in enormous quantitates to build millions of electric cars, solar panels, batteries, windmills, and long-distance transmission lines for a power grid that is going to have to triple in size. Lift a 50-pound rotor from a Tesla wheel as I have and most of the weight is in the copper.
You basically don’t have a green movement without copper.
In addition, existing copper miners seem utterly clueless about the coming shortage of their commodities. Capital spending has been deferred for decades and maintenance delayed. New greenfield mines are scant and far between. Copper inventories are at a ten-year low. Mines were closed for months in 2020 thanks to a shortage of workers caused by the pandemic.
Copper is the last of the old-school commodities that is still actively traded. It takes 5-10 years at a minimum to bring new mines online. By the time potential sites are surveyed, permits obtained, heavy equipment moved on-site, rail lines laid, water supplies obtained, and bribes paid, it can be a very expensive proposition.
That’s why near-term prospects are only to be found in Chile, Peru, and South Africa, not your first choices when it comes to political stability.
Copper is the single best value for money conductor of electricity for which there are very few replacements. Aluminum melts and corrodes. And then there is silver (SLV), right below copper of the periodic chart, which gangster Al Capone used to wire his bullet-proof 1928 Cadillac so electricity could move faster. Below silver is gold (GLD), a fine conductor of electricity but is somewhat cost-prohibitive.
As a result, base metal copper prices could more than double from here to $15,000 a metric tonne or more. The last time the price was that high was in 1968, when the Vietnam War was in full swing, as the military needs a lot of copper to fight wars. The economy was then booming.
You can’t have a synchronized global economic recovery without a bull market in commodities, and the mother of all recoveries is now in play according to the latest economic data. Phoenix, AZ Freeport-based McMoRan (FCX) is one of the world’s largest producers of copper and a long-time Mad Hedge customer.
The stock has been on a tear for a year on the back of record Chinese buying of copper ahead of their economic recovery, which started well before ours. (FCX) has soared from a $5 low a year ago to near $40 at the February high. I believe this move will continue for years. The old high for the stock in the last cycle was $50.