Is the super-cycle over for copper?

Nevertheless, it is possible to build a very bullish case for copper as its use cases are numerous. It plays a fundamental role in telecommunication, transportation, and electricity due to its unique properties, such as corrosion resistance, high conductivity, fire resistance, and recyclability, making it ideal for many industries. However, copper is not irreplaceable; other materials like aluminum or silver can serve as viable substitutes for supply shortages or significant price increases. Yet, the fundamental reason copper is so widely used is its diverse applicability, but not always at any cost. Over the past five years copper has seen a surge in the price. However more recently, it is possible to observe that the trend has reversed.  This is partially due to increasing inventories while China’s demand remains hard to predict.  

Moreover, recently, Tesla announced a production target of 20 million vehicles a year. Each Tesla car uses about 10-82 kg of copper, which would account for the combined output of the U.S. and Mexico's copper production. While this statement showcased just one example of the promising outlook for copper demand, it was later revised and deemed unrealistic, highlighting a potential flaw when analysts calculate copper demand. Some of the outlook is based on optimistic estimates, working backward to determine what that would mean for copper prices. Hence, when reading copper outlooks, it is essential to bear in mind that some estimates are just estimates. However, it should still be underlined that copper is believed to be an important component for the world to meet its climate goals as it is used in wind turbines, solar panels and energy storage systems. 

Regarding supply, the largest producers are located in Chile, Peru, and Congo. Currently, miners have enough copper to supply the world's demand, as inventories are building up, yet analysts fear that with current environmental trends and a rising demand, copper will experience supply shortages. This would suggest a future price rise for copper, at least until producers can scale up or build new mines. However, building new mines is a long process, taking around 10-15 years to complete after discovery, which means that supply is very inelastic. Large capital expenditures are needed, with a payoff far into the future. 

Furthermore, another challenge for producers is to obtain the necessary permits to start the process. Even though copper's many applications are environmentally friendly, studies have found that the opposite is true for its extraction. This means that people oppose the projects, resulting in delays and additional costs that feed into the ultimate profitability of the project. Hence, further investment into the red metal remains low but is expected to rise. It is also important to note that we are unlikely to run out of copper since it is not consumed like other commodities. When the original use case is over, it can be recycled multiple times without losing its original performance. Still, copper often has long use cycles, meaning that supply needs to increase to respond to the growing demand.

Ultimately, Copper is an interesting case that has been finding itself in a super-cycle. The outlook for copper remains positive, as demand seems to remain in the long-run. However, it is important to be cautious when reading projections, as these may be based on unrealistic and optimistic assumptions. So, for the investor who can look beyond the headlines and form their own perception will most likely see opportunities arise - whether that is to go long or short is up for the future to decide.