Copper Prices Rebound As Global Clean Energy Transition Drives Diversified Demand Growth

After erasing the solid July gains both made in July in the first half of August, both copper and copper mining stocks seem to be rebounding in the second half of the month. The slide in the first half of the month came as China posted weaker-than-expected imports and exports for July, including declining vehicle sales and a dip in copper imports. 

The decline in copper prices was short-lived, though, as the overall market sentiment on the metal seems to have reversed despite the weak economic data from China last month. Like many of the metals needed in the clean energy transition, copper is rallying on the growing urgency and capital investment in reducing fossil fuel dependence. Copper is not only an important material in batteries, but also in a wide range of other components of energy storage tech and the electricity grid.

A recent report from Trading Economics highlighted the dip in copper futures prices but pointed out that price levels did not decrease too far due to “market players flagged large incoming copper deficits, with current production levels failing to keep up with increasing demand for electrification”.

Copper Markets Are Becoming Less Dependent On Chinese Demand

For the last twenty years or so, copper prices have been largely driven by Chinese demand. The nation accounts for half of the global demand for the metal as its rapidly expanding economy created a massive need for copper to build the electrical infrastructure to power new and increasingly industrialized cities. 

That’s why the weaker-than-expected Chinese economic data at the start of the month were able to wipe out copper’s July gains so quickly. 

But, as the current rebound in prices reveals, market sentiment on the metal is gradually becoming less tethered to Chinese demand. As economies all over the globe look to transition away from fossil fuels, they’re investing more in infrastructure upgrades and new technologies that will enable them to meet their energy needs with clean and renewable sources. 

Many of those upgrades and new technologies are going to require copper. As such, demand for the metal is not just expected to grow but to diversify, making slight fluctuations in Chinese consumption less impactful on the overall copper market. 

The Critical Minerals Market Review estimates that achieving net zero emissions by 2050 — the target set by the 196 parties that signed the Paris Agreement in 2015 — global copper consumption will need to grow 60% by 2040. 

Meanwhile, like many other critical metals, supplies are low and struggling to keep up even with current demand levels. As demand continues to outstrip supply, miners could potentially enjoy significant revenue growth on rising copper prices, and the ones that can find new sources and open up new mines could generate strong returns for investors. 

Add Clean Energy Transition Exposure To Your Portfolio With Sprott ETFs

Sprott Asset Management, an asset management firm that’s been focused on precious metals for decades, now offers two ETFs for investors who want broad exposure to the potential copper boom. Sprott Junior Copper Miners ETF COPJ tracks an index of exploration or early-stage copper miners while Sprott Energy Transition Materials ETF SETM tracks a broad portfolio of metals and other minerals that are playing a key role in the transition to a net zero economy. 

Featured photo by Ra Dragon on Unsplash.

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