Copper prices experienced a sharp rise this spring only to fall back quickly, pressured by China’s property market issues. However, the stage is set for a sustained rally, with Freeport-McMoRan (FCX) and Teck Resources (TECK) positioned to benefit significantly.
The burgeoning artificial intelligence sector and the shift towards green energy are intensifying long-term copper supply deficits. Increasing demand from data centers, power grid enhancements, electric vehicles, charging stations, solar systems, and wind turbines will drive this trend.
Even as copper reached record highs in May, Carlyle strategist Jeff Currie labeled the metal “the best commodity out there” for the long term, highlighting its critical role in the energy transition. In a CNBC interview, Currie, who has advocated for copper since 2021, emphasized its necessity in global electrification efforts.
The emergence of two new structural drivers for copper use over the past three years has further bolstered this outlook. Power demand from AI is creating bottlenecks that must be resolved, and global military spending on copper-heavy munitions has surged following Russia’s invasion of Ukraine. Currie notes, “You’ve got three of the biggest trades all wrapped up in one commodity.”
Copper Incentive Price High
Freeport-McMoRan and Teck Resources are set to gain from the tight copper supply and high incentive prices for new projects. Investment firms like BlackRock and Goldman Sachs have identified the incentive price for copper at around $12,000 per metric ton, or about $5.50 per pound, which is 33% above the current price. This price point is crucial as it dictates the viability of new mining projects.
The prolonged wait for copper prices to reach new highs means longer delays in approving new mining projects, exacerbating future supply deficits. Trevor Yates, an analyst at Global X ETFs, which manages the COPX copper miners ETF, notes the increasing difficulty in producing copper due to the need to operate in lower-quality jurisdictions and mines. The high-interest rates further complicate the justification for investing in large projects without higher copper prices.
‘Best Leverage’ to Copper Price
CFRA Research analyst Matthew Miller anticipates new highs for copper by next year, with Freeport-McMoRan offering significant leverage to the copper price. With production and delivery costs at $2.56 per pound, a 33% rise in copper prices could substantially boost Freeport’s earnings and cash flow.
Miller also rates Teck Resources as a strong buy, noting its plans to double copper output with the expansion of its Quebrada Blanca mine in Chile. Anglo American and Rio Tinto are also ramping up production at their respective mines, but post-2025, there is little new supply expected.
Copper Miners as Acquisition Targets
The promising demand outlook and constrained supply have turned copper miners into prime acquisition targets. BHP Group’s recent $49 billion bid for Anglo American, although unsuccessful, highlights the industry’s consolidation moves. Speculation now surrounds Teck Resources following its sale of its metallurgical coal business and ongoing expansion projects.
Long-Term Copper Scarcity
The fundamental challenge of meeting copper demand remains. The International Energy Agency (IEA) forecasts a decline in total copper output from existing mines and announced projects, from nearly 25 million metric tons in 2025 to around 20 million by 2035. In contrast, McKinsey projects a surge in copper demand to 39 million metric tons by 2035, driven by the energy transition and AI-driven power needs.
AI Appetite Grows
JPMorgan’s commodities team highlights the substantial copper shortfall anticipated by 2030, driven by AI data centers’ power demands. Evercore ISI’s Amit Daryanani points to Nvidia’s decision to use copper instead of fiber optics in GPUs as a significant demand driver.
EVs and Self-Driving Cars Need Copper
The shift to electric vehicles (EVs) and autonomous driving technologies will further increase copper demand. The European Union and several U.S. states are targeting a complete shift to EVs by 2035, which will require substantial copper supplies. Innovations in EV and self-driving technology are set to push copper usage higher.
Cyclical Push Not Here Yet
Despite the promising long-term outlook, the current market has been held back by China’s economic uncertainty and U.S. interest rate fluctuations. However, for long-term investors, the current pullback might present an attractive entry point.
Key Takeaways
- Supply Deficits: Copper supply is constrained by high production costs and long project timelines.
- Demand Drivers: AI, green energy, EVs, and military spending are driving demand.
- Strategic Positions: Freeport-McMoRan and Teck Resources are well-positioned to benefit.
- Acquisition Targets: Copper miners are becoming prime targets for acquisitions.
- Long-Term Outlook: Despite short-term volatility, the long-term demand-supply imbalance supports higher copper prices.
Conclusion
The copper market is poised for significant growth, driven by structural demand from AI, green energy, and EVs, coupled with constrained supply. Freeport-McMoRan and Teck Resources stand out as key beneficiaries. Investors should consider the long-term potential of copper, even amidst current market uncertainties.
