Copper is called the ‘King of Green Metals’ for a reason.
Its use is critical in multiple green energy applications, from batteries to electrical traction motors, solar PV technologies and wind turbines, as well as broader global electrification activities.
With that in mind, the reddish-orange metal – which has traded range-bound for almost a year – remains one of our favourite industrial metals due to the expected robust demand from the green energy transition, along with multi-year inventory lows as producers struggle to overcome supply disruptions and production downgrades. These factors have in part prompted Saxo to previously label 2024 the Year of the Metals encompassing both precious and industrial metals.
After months of steady production cuts from miners such as Anglo American, Rio Tinto ASX:RIO), Vale and Teck, in addition to the shutdown of First Quantum Minerals’ (TX:FM) Cobre Panama (the world’s largest copper mine), the market has gone from a production surplus to a deficit.
Market expectations are also building that China’s economy will continue to be supported by government stimulus, and that the global economy is not slowing down. As a result, high grade copper futures have risen 14.3 per cent since late October last year, and 5.3 per cent higher over the past week alone.
A key risk in the short term is falling iron ore prices, which sends a mixed signal for industrial metals. Another risk to consider before investing in copper miners is increasing government intervention, such as what happened to First Quantum Minerals at Cobre Panama.
For those who want exposure to copper, there are several options, ranging from copper futures to copper miner equities (no pure copper miner exists, there’s also something else they’re mining, such as gold and silver). Examples include Antofagasta, Ivanhoe Mines, Southern Copper, and Zijin Mining Group.
There are also a number of ETFs which cover either copper miners or underlying copper futures, such as WisdomTree Copper ETC and iShares Copper Miners UCITS ETF.
It’s important to note that a number of factors drive the copper price – from supply and demand dynamics (as discussed), to the fallout from weather and natural disasters, global economic conditions, the interest rate environment, and investor sentiment. All of these should be considered by investors seeking exposure to copper.
Lithium higher on healthier supply/demand
Another green metal, lithium, is primarily used in electric vehicle (EV) batteries.
Lithium has been in a bear market since 2022, when Tesla Chief Executive Officer Elon Musk said lithium prices were unsustainable and partnered with China’s CATL (the largest battery maker in the world) to lower refinery prices on lithium carbonate.
Since the beginning of this year, Chinese-based lithium carbonate prices have turned higher, reflecting a healthier supply and demand situation.
With EV production predicted to continue growing 25 per cent – annualised – over the coming decade, the market for lithium will continue to expand.
This is a different way to get exposure to the growing EV trend without betting on who wins the brand battle between Tesla, BYD, and Volkswagen.
Lithium and lithium carbonate do not have active futures, so investors can only gain exposure through miners and ETFs tracking lithium miners. Miners include Albemarle, Pilbara Minerals (ASX:PLS) and Chile-focussed SQM, while ETFs include iShares Lithium and Battery Producers UCITS ETF, Global X Lithium and Battery Tech UCITS ETF.
Disclaimer: Saxo Capital Markets (Australia) Limited (Saxo) provides this information as general information only, without taking into account the circumstances, needs or objectives of any of its clients. Clients should consider the appropriateness of any recommendation or forecast or other information for their individual situation.
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