We are pleased to introduce The Investment Intelligence Podcast, where experts discuss all things investing, from recent market developments, to strategy, sustainable investing, asset allocation, risk management and more.
Copper is one of the most widely extracted metals, with only iron and aluminium being produced in greater quantities. The attractiveness of copper lies largely in its excellent conductive properties, both thermal and electrical, as well as its antimicrobial properties.
Global trends point to strong growth in copper demand over the coming years.
Copper indispensable for the decarbonization of energy production and transport.
Long project lead times and ESG scrutiny will dampen supply growth.
Prices likely to be well supported for the foreseeable future.
Indeed, copper has a broad range of uses that include electronics, plumbing, jewellery and coin production, as well as medical applications. And it is for these reasons, in particular, that we see the usage of copper growing in many areas of economic and daily life – energy infrastructure, transport, and consumer electronics are just three key growth areas where copper is indispensable and often irreplaceable.
Combined with the lack of viable substitutes for many applications, several global megatrends mean that copper demand is likely to continue growing steadily for many years to come. Critical here are ongoing efforts to decarbonize energy production, as well as passenger and freight transport. For example, wind and solar energy production requires around 2.5 times the copper per megawatt (MW) output than thermal generation,1 while the average battery electric vehicle (EV) uses around four times as much copper as an equivalent vehicle powered by an internal combustion engine.2
Copper extraction typically takes place in large scale mines using industrial techniques, meaning that new projects can have long lead-in times, require considerable capex commitments, and often raise complex ESG issues involving both effects on the natural environment and on local communities in the areas where extraction takes place. Mining is generally conducted using open pits; while the number of underground operations is growing, the economics of extraction dictate that these require higher ore grades – or the existence of valuable by-products – to be viable.
Geographically, copper production is currently concentrated in Chile (5.6 million metric tons in 2021, representing 27% of global production), Peru (2.2m tons; 10%), China (1.8m tons; 9%), DR Congo (1.8m tons; 9%), and the USA (1.2m tons; 6%).3 In corporate terms, the copper extraction industry is consolidated with several major players controlling a significant share of the market. For instance, the top five players in 2020 produced 6.28 million metric tons between them, or around 30% of total global production.4
In terms of copper smelting – the metallurgical process used to produce copper metal from unprocessed ores or copper scrap – China is dominant, with at least six of the world’s largest 20 smelters and over 50% of world copper smelter production in 2020;5 a reflection of China’s huge and growing demand for the metal, currently totalling over 50% of total global consumption.6 As with the extraction of copper ore itself, the smelting and refining process must also reckon with its own environmental footprint, with key issues including the management of off-gases and dust, as well as the energy-intensive nature of the smelting process.
Percentage share of global production
Source: U.S. Geological Survey, Mineral Commodity Summaries,January 2022
Supply, demand, and price outlook
Decarbonization represents one of the most profound trends currently affecting economies throughout the world. With the switch to sustainable energy production and away from the internal combustion engine both crucial elements of achieving the Paris climate goals, copper’s growing role cannot be understated. To put it simply, there can be “no decarbonization without copper”.7 The move to net zero is thus currently a core driver of the structural bull market in commodities and copper in particular is likely to see surging demand as the transition accelerates. Indeed, by some estimates global copper demand is projected to grow, in a baseline case, by around 600% by 2030 and perhaps by up to 900% in the event that the adoption of green technologies picks up significant pace8 – something that seems increasingly likely given the ongoing uncertainty around energy supplies caused by the Russian invasion of Ukraine. Either way, the current decade is very likely to see the strongest growth in global copper demand on record and this growth may continue to accelerate as structural limitations on the expansion of renewable power generation and EV production are removed.9
EV copper demand scenarios
However, demand, of course, only tells half of the story. On the supply side, we are currently seeing a deficit representing around 3% of global demand.10 And while there are a range of named projects in the pipeline, these may be unlikely to significantly ameliorate supply issues before the end of the decade.11 Copper is a long cycle commodity – with two to three years to extend existing mines and up to eight to establish new projects – and despite the rally in copper prices over the last year, there are currently still no significant greenfield projects approved as a decade of weak returns and ESG scrutiny has dampened investment in future supply.12 Political issues may also have an impact in the coming years. While some copper is sourced from areas experiencing ongoing political turmoil, policy issues may also affect supply in more stable countries; for instance, the effect of the ongoing controversy regarding the increased taxation of mining firms in Chile is yet to be fully played out. Copper’s broad range of uses, as well as its indispensability for decarbonization and the green transition, mean that demand is forecast to remain extremely strong for some time. Coupled with the supply issues discussed above, it seems the copper market is largely underprepared for the demand environment that we will see over the coming years, and low inventories – plus a weak US dollar – may well provide additional impetus. Prices are thus likely to be well supported for the foreseeable future.
Copper supply and demand outlook
1 UBS, “Copper”, Global Research, 21 February 2022 2 IDTechEx, “The Electric Vehicle Market and Copper Demand”, June 2017 3 USGS, “Copper”, January 2022 4 Statista, “Leading copper miners worldwide in 2020”, 17 November 2021 5 BGR, “Copper – Sustainability Information”, July 2020 6 Nornickel, “Annual Report 2020”, May 2021 7 Goldman Sachs, “Green Metals”, Commodities Research, 13 April 2021 8 Ibid. 9 Société Générale, “Metals & Mining”, Cross Asset Research, 18 March 2021 10 Ibid. 11 Ibid. 12 Goldman Sachs, “Green Metals”, Commodities Research, 13 April 2021
Investing involves risk. The value of an investment and the income from it will fluctuate and investors may not get back the principal invested. Investments in commodities may be affected by overall market movements, changes in interest rates, and other factors such as weather, disease, embargoes and international economic and political developments. Past performance is not indicative of future performance. This is a marketing communication. It is for informational purposes only. This document does not constitute investment advice or a recommendation to buy, sell or hold any security and shall not be deemed an offer to sell or a solicitation of an offer to buy any security. The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted. This material has not been reviewed by any regulatory authorities. In mainland China, it is for Qualified Domestic Institutional Investors scheme pursuant to applicable rules and regulations and is for information purpose only. This document does not constitute a public offer by virtue of Act Number 26.831 of the Argentine Republic and General Resolution No. 622/2013 of the NSC. This communication’s sole purpose is to inform and does not under any circumstance constitute promotion or publicity of Allianz Global Investors products and/or services in Colombia or to Colombian residents pursuant to part 4 of Decree 2555 of 2010. This communication does not in any way aim to directly or indirectly initiate the purchase of a product or the provision of a service offered by Allianz Global Investors. Via reception of his document, each resident in Colombia acknowledges and accepts to have contacted Allianz Global Investors via their own initiative and that the communication under no circumstances does not arise from any promotional or marketing activities carried out by Allianz Global Investors. Colombian residents accept that accessing any type of social network page of Allianz Global Investors is done under their own responsibility and initiative and are aware that they may access specific information on the products and services of Allianz Global Investors. This communication is strictly private and confidential and may not be reproduced. This communication does not constitute a public offer of securities in Colombia pursuant to the public offer regulation set forth in Decree 2555 of 2010. This communication and the information provided herein should not be considered a solicitation or an offer by Allianz Global Investors or its affiliates to provide any financial products in Brazil, Panama, Peru, and Uruguay. In Australia, this material is presented by Allianz Global Investors Asia Pacific Limited (“AllianzGI AP”) and is intended for the use of investment consultants and other institutional/professional investors only, and is not directed to the public or individual retail investors. AllianzGI AP is not licensed to provide financial services to retail clients in Australia. AllianzGI AP is exempt from the requirement to hold an Australian Foreign Financial Service License under the Corporations Act 2001 (Cth) pursuant to ASIC Class Order (CO 03/1103) with respect to the provision of financial services to wholesale clients only. AllianzGI AP is licensed and regulated by Hong Kong Securities and Futures Commission under Hong Kong laws, which differ from Australian laws. This document is being distributed by the following Allianz Global Investors companies: Allianz Global Investors U.S. LLC, an investment adviser registered with the U.S. Securities and Exchange Commission; Allianz Global Investors Distributors LLC, distributor registered with FINRA, is affiliated with Allianz Global Investors U.S. LLC; Allianz Global Investors GmbH, an investment company in Germany, authorized by the Page 6 of 6 Internal German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin); Allianz Global Investors (Schweiz) AG; in HK, by Allianz Global Investors Asia Pacific Ltd., licensed by the Hong Kong Securities and Futures Commission; ; in Singapore, by Allianz Global Investors Singapore Ltd., regulated by the Monetary Authority of Singapore [Company Registration No. 199907169Z]; in Japan, by Allianz Global Investors Japan Co., Ltd., registered in Japan as a Financial Instruments Business Operator [Registered No. The Director of Kanto Local Finance Bureau (Financial Instruments Business Operator), No. 424], Member of Japan Investment Advisers Association, the Investment Trust Association, Japan and Type II Financial Instruments Firms Association; in Taiwan, by Allianz Global Investors Taiwan Ltd., licensed by Financial Supervisory Commission in Taiwan; and in Indonesia, by PT. Allianz Global Investors Asset Management Indonesia licensed by Indonesia Financial Services Authority (OJK).
Diverging paths ahead
Diverging economic and monetary policy paths are feeding through to government bond markets, presenting risks and opportunities for investors. In the second of four articles exploring ways that investors can reset bond allocations, we discuss ideas for navigating the divergence in central bank policy, inflation, currency risks and economic performance.
Fixed-income turmoil has tested investor resolve as bond markets shift to an inflation-focused environment after years orientated around economic growth. In the first of four articles uncovering how investors can reset bond allocations and inform portfolio positioning, we explore ideas for protecting against volatility.
Potash refers to a variety of potassium-rich compounds that are usually mined from underground deposits. The most common use of potash is as a plant fertilizer in agriculture – potassium can strongly boost crop yields by strengthening plants against stress and disease, deterring weeds and parasites, and improving the transfer and retention of water and nutrients from the soil to the plant.