The economy is opening up a lot faster than expected, and the push to “go green” is also accelerating. That combination is particularly positive for copper, which is the most cyclically sensitive of all commodities, notes Tony Sagami, editor of Weiss Ultimate Portfolio.
As the economy opens up and spending is released on construction, electrical networks, transportation and industrial machinery, demand for copper will likely increase.
And we’re talking more than just a cyclical recovery: Copper is also a direct play on the decarbonization of the global economy.
Example No. 1: Electric vehicles (EVs) require three to four times more copper wiring than internal combustion engine cars.
Example No. 2: Solar and wind farms will require an extensive amount of copper for use in storage and transmission.
According to the International Energy Agency (IEA), copper will remain the most widely used metal in renewable energy technologies. That’s because its electrical conductivity is second-best after silver and is 60% higher than aluminum.
EV manufacture and battery-storage technology — both of which require lots of copper — are set to accelerate rapidly over the coming decades.
Last year, EV sales were around 3 million. By 2040, they could be as high as 70 million. Goldman Sachs analysts predict that copper demand will grow nearly 600% to 5.4 million tons by 2030.
The best way to profit from that surging copper demand is by investing in Freeport-McMoRan Inc. (FCX). The firm produced 1.45 million tons of copper in 2020, making it the third-largest copper producer in the world.
It operates the Grasberg copper/gold mine in Indonesia, which is one of the largest gold mines in the world; Cerro Verde in Peru and El Abra in Chile; seven mines in the U.S., including the Morenci mine in Arizona, one of the largest copper deposits in North America.
In total, Freeport-McMoRan operates seven open-pit copper mines in North America and two in South America. Management reported a whopping 73% quarter-over-quarter increase in total revenue for the first quarter of 2021.
Copper is trading for about $4.50 a pound today, while Freeport is producing at a cost of $1.33 a pound. That’s why it’s striking serious profits now. Note that every 10-cent change in the price of copper results in a $265 million increase (or decrease) in quarterly revenue.