Copper
is
currently
trading
at
around
two-year
highs,
driven
by
the
belief
that
the
red
metal’s
supply
will
struggle
to
keep
pace
with
rising
global
demand,
as
well
as
a
hedge
against
renewed
inflation
fears.
The
commodity’s
role
in
the
carbon
transition
and
in
the
AI
revolution
are
also
key
factors
in
expected
higher
demand.
And
from
the
supply
side,
production
cuts
in
mines
are
increasing:
a
recent
example
is
the
6.5%
reduction
in
quarterly
production
at
Ivanhoe
Mines
in
the
Kamoa-Kakula
complex
in
the
Democratic
Republic
of
Congo.
Or
the
decision
by
the
Chinese
Smelter
Purchasing
Team
(CSPT)
to
reduce
production
by
5-10%
in
the
country’s
main
smelters.
There
are
other
political
factors
at
work
too.
“The
banning
on
the
LME
and
CME
(Chicago
Mercantile
Exchange)
of
aluminium,
nickel
and
copper
deliveries
from
Russia
has
led
traders
to
consider
an
increased
supply
risk,”
explains
Maurizio
Mazziero,
financial
analyst
and
commodity
expert.
BHP’s
takeover
bid
on
Anglo
American
for
$39
billion,
which
has
been
seen
as
pitch
for
the
company’s
copper
and
iron
ore
assets,
also
suggests
high
demand
for
the
commodity.
These
are
all
factors
that
add
volatility
to
the
price
of
copper.
But
as
Mazziero
says,
these
make
it
difficult
to
forecast
the
price
for
2024.
But
with
copper
trading
around
$9,890
per
tonne
on
the
London
Metal
Exchange
(LME),
Mazziero
says
that
the
price
reaching
a
historical
high
of
$11,000
is
realistic.
“The
copper
market
could
be
close
to
a
deficit
situation
due
to
recent
supply-side
disruptions,
and
any
indication
of
a
recovery
in
demand
would
have
a
significant
impact
on
an
already
rather
tight
situation,”
comments
Roberta
Caselli,
commodities
investment
strategist
at
Global
X.
And
indeed,
while
global
visible
stocks
remained
41%
below
the
seasonal
average
of
the
past
five
years,
copper
consumption
is
rising,
especially
in
China.
“Opportunities
for
significant
new
demand
growth
could
also
arise
due
to
the
massive
boom
in
infrastructure
spending
in
India.
Government
sources
have
reported
that
India
will
send
two
delegations
to
Chile
next
month
to
explore
copper
deposits,
which
it
needs
for
its
rapid
economic
growth
and
energy
transition
plans,”
Caselli
explains.
No
Copper,
No
Green
Economy
Global
efforts
towards
decarbonisation
are
a
structural
growth
engine
for
many
raw
materials
or
metals,
and
copper
is
one
of
the
key
metals
for
the
energy
transition.
For
example,
wind
and
solar
are
among
the
most
popular
forms
of
renewable
energy
today.
The
graph
below
shows
the
amount
of
copper
required
to
generate
energy
from
offshore
wind
(wind
turbines
in
the
sea),
onshore
wind
(wind
turbines
on
land)
and
solar
photovoltaics
compared
to
fossil
fuels
such
as
coal
and
natural
gas.
“This
signals
how
demand
for
copper
(and
also
for
other
metals)
has
become
less
elastic
with
respect
to
the
market
cycle,
as
they
are
now
supported
by
a
secular
trend,”
says
Benjamin
Louvet,
head
of
commodities
at
Ofi
Invest
AM.
“Also
supporting
demand
are
elements
that
were
not
previously
considered
or
that
are
linked
to
the
emergence
of
new
needs.
One
example
of
all
is
the
development
of
the
electricity
grid,
with
many
governments,
especially
European
ones,
only
recently
realising
that
not
developing
it
could
frustrate
all
the
efforts
made
for
the
transition,”
Louvet
continues.
Copper
is
an
excellent
conductor
of
electricity,
making
it
the
ideal
material
for
renewable
energy
systems.
Its
high
electrical
conductivity
enables
efficient
energy
transfer,
minimising
power
losses
during
transmission
and
distribution.
Artificial
Intelligence
is
Hungry
For
Copper
Too
Finally,
further
supporting
the
structural
growth
of
copper
demand
could
be
the
demand
from
data
centres
for
artificial
intelligence,
a
key
component
of
a
rapid
deployment
of
AI
technologies.
“In
the
US
alone,
data
centres
consumed
17GW
of
energy;
by
the
end
of
the
decade,
it
is
estimated
that
data
centre
energy
requirements
will
double
to
35GW,”
says
Albert
Chu,
portfolio
manager
at
Man
Group.
“When
considering
this
growth,
it
should
be
kept
in
mind
that
estimates
of
data
centre
expansion
resulting
from
artificial
intelligence
penetration
are
at
an
early
stage
and
likely
underestimate
the
ultimate
demand.”
Although
the
implications
are
still
at
an
early
stage
for
global
copper
markets,
the
outlook
suggests
that
there
are
strong
secular
drivers
for
demand.
“Let
us
assume
that
the
US,
where
about
half
of
the
AI
market
is
concentrated,
will
increase
its
development
by
an
additional
5
GW
each
year.
This
alone
would
increase
demand
by
500,000
tonnes
worldwide,
which
is
equivalent
to
a
2%
increase
in
global
copper
demand,”
says
Benjamin
Louvet.
Although
it
may
seem
insignificant,
in
an
already
tight
market
even
a
1%
shortage
could
plunge
the
market
into
a
significant
deficit.
With
the
world
striving
to
achieve
zero
net
emissions
in
the
next
three
decades,
then,
Albert
Chu
predicts
that
“demand
for
copper
will
grow
five
to
six
times.
However
–
he
continues
–
this
surge
may
be
difficult
to
meet
given
current
supply
constraints.”
Investing
in
Copper
ETCs
The
easiest
way
to
gain
exposure
to
the
spot
price
of
a
commodity
is
through
an
ETC
(exchange-traded
commodity).
European
investors
can
choose
from
less
than
a
dozen
ETCs
focused
exclusively
on
copper,
as
well
as
several
other
instruments
offering
exposure
to
a
diversified
basket
of
industrial
metals.
The
list
below
excludes
short
instruments
(which
return
an
inverse
result
to
the
benchmark)
or
leveraged
instruments
(which
amplify
the
results
–
often
daily
–
of
the
replicated
index)
and
those
with
less
than
€1
million
in
assets
under
management.
Methodology
for
Copper
Investing
As
can
be
seen
from
the
returns
shown
in
the
table,
these
instruments
are
not
equivalent.
They
often
replicate
different
benchmarks,
based
on
different
methodologies,
which
results
in
a
divergent
risk-return
ratio.
For
example,
the
benchmarks
of
the
RICI
Enhanced
family
(created
by
Jim
Rogers
in
the
late
1990s)
depart
from
the
common
practice
of
using
the
futures
contract
with
the
closest
expiration
date
as
the
price
source;
this
is
to
try
to
minimise
the contango effect.
A
very
important
element
in
determining
the
value
of
synthetic
ETCs
is
related
to
the rolling
effect,
which
is
simply
the
replacement
of
the
expiring
futures
contract. Rolling is
negative
if
the
expiring
contract
has
a
lower
price
than
the
new
one
(so-called contango)
and
is
positive
in
the
opposite
case
(backwardation).
Therefore,
the
RICI
Enhanced
benchmarks
invest
in
futures
contracts
with
different
maturities
to
smooth
out
the
price
differentials
of
the
various
futures
contracts.
For
each
individual
commodity,
a
particular
schedule
is
defined
for
the
replacement
of
the
benchmark
futures
contracts,
which
also
takes
seasonal
cycles
into
account;
finally,
a
liquidity
filter
eliminates
under-traded
futures
contracts.
This
explains
the
generally
higher
fees
charged
by
these
strategies.
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