The price of copper has been on a tear higher since its April 2020 low. The demand for the mineral is poised to increase in the years ahead, while supply has severe issues.
Commodity prices are through the roof as the global economy recovers from the COVID-19 pandemic. Fueled by loose monetary policy and fiscal stimulus, commodity prices have reached record highs during the pandemic (e.g. gold), or have traded with a bid tone close to all-time highs.
Copper is a benchmark for global economic recovery. It is an industrial metal used in construction, but also in wires and circuit boards. Also known as “Dr. Copper”, it is viewed by many as a bellwether, reflecting the direction of the global economy.
More precisely, strong demand for copper translates into higher prices and thus an indication that the global economy is expanding. The opposite suggests contraction.
Demand for copper seems poised to increase for at least two reasons. Firstly, since 1990, only 224 copper deposits have been discovered, and only sixteen in the last ten years. Hence, we can talk about a supply issue.
Secondly, the new trend in electric vehicle production, green energy, and battery storage suggests strong demand for minerals used in these industries. They rely heavily on copper, and the trend is set to accelerate in the future. By 2040, it is expected that over seventy million electric vehicles will be sold, compared to only three million in 2020.
Dr. Copper Suggests Robust Economic Recovery Ahead
The new industry trends point to increased demand for copper in the years and decades ahead. Coupled with the global economy’s recovery after the COVID-19 pandemic, we may have the perfect storm for the price of copper to advance even more.
The rise from 2020 April lows has been nothing short of spectacular. The market is in a bullish trend, as confirmed by the series of higher highs and higher lows. As long as the price of copper remains above the rising trendline, it will keep finding bids on support and investors will push it to a new higher high.
Copper is one of the critical minerals needed for green energy technologies. It is used in building electricity networks, in the bioenergy industry, but also in the wind and solar energy industries.
Hence, the demand for copper is guaranteed to rise in the future, while the supply points to severe bottlenecks. The two combined may lead to a bullish cocktail for the price of copper.