Green economy to re-energize copper prices

An economic rebound that boosts demand and a sluggish supply chain still recovering from pandemic disruption should raise copper prices this year, with mining firms set to benefit, a CIBC analyst says.

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Like other commodities, copper was hit early in the pandemic as its price plummeted along with demand for the metal. But like other assets it also rebounded quickly, from around $2 per pound in March to around $3.70 last month, said Daniel Greenspan, senior analyst and resource team director with CIBC Asset Management.

“Looking into 2021, we see a few factors at work that should continue to support the copper price this year,” he said in a Jan. 25 interview.

First is a return to normal demand as vaccines are distributed and economies recover. Governments and central banks will continue to support the reopening, Greenspan said, contributing to stronger demand.

The supply side also looks supportive of higher prices.

“We see risks that assets were undercapitalized in 2020 as mining companies were forced to deal with the pandemic by reducing workforces and cutting spending at their operations,” said Greenspan, who manages the CIBC Precious Metals Fund.

“This will likely mean that some maintenance needs to be caught up on at the mines this year and that could impact production levels.”

The medium-term outlook is also strong, as copper will play a “critical” role in a low-carbon economy, he said.

Green energy is expected to receive a boost under the administration of U.S. President Joe Biden, who is prioritizing a greener economy and signed an executive order on his first day in office to rejoin the Paris Agreement on climate.

“Copper is going to be a key metal required to build out the infrastructure that will deliver renewable, lower-carbon energy to end users,” Greenspan said. “We believe significant mine supply response will be required to meet this new area of demand growth and a higher copper price will be needed to incentivize the new production into the market.

Companies he likes include Vancouver-based First Quantum Minerals Ltd. and Teck Resources Ltd., which have new copper projects in Panama and Chile, respectively. Toronto-based Lundin Mining Corp. should benefit from expanded copper production in Chile this year, he said, with investors seeing a dividend boost.

As with other assets, the outlook for copper would be hurt by a slower-than-expected vaccination rollout that delays the economic recovery, or by less accommodative monetary and fiscal policy, Greenspan said.

“And there is potential for a better supply side response in a strong copper price environment,” he said. “This could include a more robust scrap market than we expect.”

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