This is, undoubtedly, a difficult market.
It seems as though each day brings unexpected market noise that makes it frustratingly difficult to focus on long-term investing goals.
The bear market in equities is well-trod territory at this point, so other asset classes warrant consideration.
Specifically, commodities. Analysts are increasingly looking at the current commodities markets as representing the beginning of a new commodity super-cycle, given the relative performance between equities and commodities for the last decade.
Supporting the case is the rapid electrification of cars on the road and pivot to green energy products that will place more and more demand on the grid and while requiring more commodity-related materials, like copper.
Plus, higher inflation will likely impact these commodities, leading me to think that copper stocks are an excellent hedge on inflation.
“Dr. Copper,” as it is referred to in the investment and economic forecasting business, is closely watched in markets because of its ability to identify important shifts in the world economy. It had been on quite a ride over the last two years, going from about $4,400 a ton in May 2020 to a high of close to $10,000 a ton in May 2021. It went sidewise for a while but has since fallen back to around $9,500 a ton on the London Metals Exchange.
What is going on? Could this just be a predictor of lower economic activity across the globe, and particularly in China, or a sign that the green revolution is on hold?
Amidst all the chatter about a new commodity “super-cycle,” clean-tech copper certainly seems to have one of the stronger bull cases.
Not all that long ago, no less than Goldman Sachs predicted that prices will rise to $15,000 per ton by 2025, from $10,000 today, as demand for the so-called red metal outstrips supply.
Does this thinking still hold water?
Demand growth will definitely come from the greening of the economy since copper is a cost-effective conductor of heat and electricity and therefore a vital input to greentech.
It takes four or five times as much copper to make an electric vehicle as a regular car. Copper also goes into charging stations, solar panels and wind turbines. However, at present, annual cleantech demand for copper is only about 1 million tons, or just 3% of supply. Goldman thinks this could go up 5X by 2030, which will move markets since they look ahead.
And don’t forget that copper output is far less flexible than many economists think. It takes about three years to expand output at an existing copper mine and a decade or longer to get a new one up and running after all the red tape, not to mention enormous buckets of capital.
Odds are copper will do well as China’s lockdown eases and the current clouds overhanging clean tech lift. I think copper will recover its mojo; but how can you play it?
4 Copper Plays
Here are four copper stocks (including one ETF) in order of what I perceive as aggressive to conservative.
Southern Copper (SCCO) is perhaps the purest copper play while Phoenix is the home base for giant miner Freeport McMoRan (FCX), which has operations all over the world including the famous Grasberg mine in Indonesia. Canadian Teck Resources (TECK) has been on an amazing run since March 2020, up 6X, and has not pulled back much of all this year.
Finally, there is the shotgun approach with Global X Copper Miners ETF (COPX). Global X has all of the above companies in its basket of stocks with the 10 largest copper stocks accounting for about half of its total assets.
Whichever fits your risk/reward profile, my advice is to take advantage of the pullback to get some commodities and copper stocks into your portfolio.
Do you own any copper stocks or ETFs not mentioned above?