TOL - 3rd Jun, 2024
Thinking beyond the Ore: Adopting thematic opportunities
Evolving thematic trends in copper demand could be setting the stage for long-term growth.
Copper prices have surged recently, driven by a mix of inflationary pressures and disruptions in supply and demand. While these traditional factors are significant, it’s the evolving thematic trends in copper demand that could be setting the stage for long-term growth. Key catalysts include China’s dynamic economic policies and the increasing use of copper in AI data centres.
Navigating recent market dynamics
Copper prices have surged by 27% year-to-date, driven by strong demand and significant supply constraints. Institutional investors’ bullish stance on copper futures underscores market confidence in sustained price growth.(1) However, major miners like Rio Tinto (ASX: RIO), First Quantum, and Anglo American are dealing with production downgrades due to underinvestment and declining ore grades.(2) Meanwhile, Chinese smelter closures, caused by collapsing margins, are tightening the supply outlook further, given China’s pivotal role in global copper smelting.(3)
A new era for copper in AI and technology
Copper’s role in AI data centres is expanding rapidly. As the AI revolution unfolds, copper is becoming both a crucial component and a potential bottleneck. AI data centres need around 65,000 tons of copper for each gigawatt (GW) of applied power.(4) With the U.S. alone forecasted to add 18 GW of capacity by the decade’s end, the demand for copper in these infrastructures is substantial.(5)
Advancements in AI and increased global investment in data infrastructure are expected to sustain and accelerate copper demand. As AI technologies evolve to be more efficient and cost-effective, the adoption of copper-intensive infrastructures will only grow, driving higher consumption.
China’s strategic moves
China, the world’s largest consumer of copper, significantly influences global copper demand through its economic activities and policies. China accounts for more than half of the total global demand and its economic development has tripled its copper demand in the last decade.(6) Recent improvements in China’s manufacturing PMIs and infrastructure projects are boosting copper consumption. China’s Belt and Road Initiative continues to drive large-scale infrastructure investments that require substantial copper usage.(7)
On May 17, the PBOC announced new property easing measures: RMB300bn for social housing, lower downpayment requirements, removal of the national mortgage floor, and reduced loan rates for housing provident funds.(8) These measures are expected to stimulate the property market, leading to increased construction activities and, consequently, higher copper demand for electrical wiring, plumbing, and other construction-related uses.
Copper miners: A strategic play
Investing in copper miners has historically been seen as a leveraged play on copper prices. Copper miners often outperform bullion in bullish markets due to their ability to use operating leverage to increase profits. Unlike direct investments in copper, miners can expand production as profit margins grow, providing a potentially higher return on investment during periods of rising copper prices (refer to graph below).(9)
Embracing the future: Thematic investments in Copper
Copper’s future looks bright, driven by technological advancements and strategic economic policies, particularly in China. As we navigate through this dynamic market, investing in copper and copper miners presents a compelling opportunity to leverage the growing demand for this essential metal.
The Global X Copper Miners ETF (ASX: WIRE) invests in a global basket of copper miners which stand to benefit from being a key part of the value chain facilitating growth in major areas of innovation such as technology, infrastructure and clean energy.
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Global X Copper Miners ETF (WIRE)
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Billy joined Global X in 2024 and is responsible for investment research and ETF analysis in the technology sector. Billy has over a decade of experience in financial services, focusing on equities and technology, previously working as Equity Analyst at Optiver in Sydney, and was the Director of Equity Research for China Internet at Haitong International in Hong Kong. Billy was ranked as the 3rd best equity analyst for regional software and internet in 2020 by Asiamoney. Billy holds a Bachelor of Commerce from the University of Melbourne and is a qualified CPA Australia.
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FOOTNOTES
(1)Bloomberg data (n.d.) Data accurate as of 21 May 2024
(2)Morgan Stanley Research. Data as of April 2024
(3)Mining.com
(4)MIT Institute as of 26 March 2024
(5)https://www.datacenterdynamics.com/en/news/us-data-center-power-consumption/
(6)Global X ETFs with information derived from Bloomberg LP. Data as of January 2024
(7)International Copper
(8)https://edition.cnn.com/2024/05/17/economy/china-rescue-measures-housing-market-intl-hnk/index.html
(9)Source: Global X ETFs with information derived from Morningstar Direct. Data from 4/30/2014 to 4/30/2024. Asset Classes are represented by the following indexes: Copper Miners, Solactive Global Copper Miners Total Return Index; Copper Spot, S&P GSCI Copper Index. Returns and correlations are calculated using 1 year rolling returns with a 1 day moving step.
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Billy joined Global X in 2024 and is responsible for investment research and ETF analysis in the technology sector. Billy has over a decade of experience in financial services, focusing on equities and technology, previously working as Equity...
Billy joined Global X in 2024 and is responsible for investment research and ETF analysis in the technology sector. Billy has over a decade of experience in financial services, focusing on equities and technology, previously working as Equity...
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