Copper is one global commodity that has experienced huge price appreciation during the pandemic. For over a year, Covid-19 has created havoc around the world, bringing destruction and disruption to every area of our lives.
But amongst the chaos, it has also created a ‘perfect storm’ of favourable conditions for certain types of asset. Copper is now trading at 80% more than it was a year ago.
Low interest rates, low to negative real yields, and once in a generation monetary policy have all contributed to an environment where non-interest yielding investments like copper are ripe for immense price increases.
Although there are some signs copper’s bull run may be running out of steam, the mass roll-out of Covid-19 vaccine programs has raised hopes of a global economic recovery.
The IMF has published optimistic projections for 2021 that forecast a 5.5% rise in global GDP, driven primarily by a consumer and manufacturing-led recovery.
Critically, many of the materials used in manufacturing from cars to electronics to construction are mined minerals just like copper.
US And China Hold Key
Two of the world’s largest economies, China and the US, will be pivotal to any global recovery and both look set to boost demand for mined materials.
China has accounted for approximately 50% of all global copper consumption in recent years, and the IMF expects Chinese GDP to grow by 7% during 2021.
In the US, PMI data is already showing a resurgence in factory output, and the new Biden administration is set to launch huge infrastructure projects that will rely on mined materials.
In a review of Western-based copper and aluminium producers, analysts at Morgan Stanley gave their assessments of the best stock picks across the mining space.
The report highlighted several US-traded miners – BHP, Vale, Southern Copper, Freeport-McMoRan, Alcoa – and concluded mining industry stocks are currently under-owned and equity valuations in the space are attractive.
On copper specifically, Morgan Stanley estimates up to a year more longevity in the commodity as an investment opportunity, with supply growth expected to outpace strong demand in the next 1-2 years.
Throughout the first quarter of 2021, copper’s market drivers have been “almost universally positive, supported primarily by a consumer and manufacturing-led global recovery, speculative inflows, limited supply growth, and disrupted shipping“.