Copper
could be the metal to pick for investors who want to ride the shift away from fossil fuels and into renewable energy.
The metal, sometimes called Dr. Copper because it is so widely used that the price offers signals about the economic outlook, faces headwinds. Demand from China, the world’s second-largest economy and the top copper consumer, is sputtering.
But the metal is also central to the shift to renewable energy. Electric vehicles, wind farms, and solar panels all rely on copper as an essential component.
Analysts at
Citi
say the metal is “THE bullish energy transition trade” within commodities. According to the bank, the price can rally regardless of the global economic cycle.
“Copper can still go up even if the cyclical demand sectors, including China property, remain weak through 2025,” Citi said in a recent report. “Were global cyclical demand to remain weak during 2025, copper’s supply and demand fundamentals disappoint, we find it entirely plausible that investor and consumer futures buying, together with solid decarbonisation-related demand, sees prices at or above current levels.”
Citi said copper has three characteristics that underpin the bullish outlook over the next 18-24 months. First, it offers investors exposure to the energy transition because demand will be driven by EVs, solar and wind power generation, and related infrastructure over the coming years.
Another factor in copper’s favor is that the metal is “ESG-friendly,” Citi said, referring to its environmental, social, and governance credentials. The authors noted that the metal helps lower global emissions as copper, nickel, aluminum, lithium, and steel are net-negative greenhouse-gas emitters. As such, they are the main drivers of global decarbonization and climate-change mitigation.
Also, metals, including copper, underpin the world economy as copper contributes to electrification, which in turn drives power consumption and thus global growth. This helps to alleviate poverty, according to the report.
Finally, Citi said copper is the most liquid commodity with a bullish exposure to the energy transition. The metal is traded on three exchanges: the London Metal Exchange, Comex, and the Shanghai Futures Exchange.
“The combination of copper’s unique set of characteristics and a very bullish cyclical environment could see copper make oil’s 2008 bull run look like child’s play,” the analysts said.
U.S. copper futures for August delivery closed down about 1% at $3.7675 a pound on Thursday. Copper is nearly unchanged for the year after a series of swings that have largely tracked China’s economic news.
Write to Lauren Foster at [email protected]
Read the full article here
