Green energy, low supply to drive copper prices

After moving sideways for the past six months, the outlook for copper is strong with supply and demand factors supporting the red metal’s price, a CIBC analyst says.

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Daniel Greenspan, senior analyst and resource team director with CIBC Asset Management, said the global copper inventory is low as demand from green energy projects picks up.

“The ongoing transition to a lower-carbon energy market will be hugely copper-intensive,” he said in an interview last month.

The metal is used in wind and solar infrastructure and for power-grid upgrades required to deliver green energy to end consumers. While a couple of large-scale mines are starting production, Greenspan said there’s not a lot of new development in the pipeline.

“We expect the market will absorb the new supply coming and then enter a period of limited growth as the sector has under-invested in exploration and development for a number of years,” he said.

A fiscal and monetary loosening cycle in China will only add to demand. Combine that with higher political risks in producing countries such as Peru and Chile, Greenspan said, and the limited supply should lead to higher prices.

“We expect the supply from new mines will have to be incentivized into production to balance the market, and we believe that a higher copper price will be required to bring the next generation of [green energy] projects into production,” Greenspan said.

Companies set to benefit from higher copper prices include Vancouver-based Teck Resources and First Quantum Minerals.

Another commodity Greenspan likes in the current market environment is potash. An already concentrated market could become even tighter as Belarus and Russia face possible sanctions over the invasion of Ukraine. On Wednesday, the European Union added to existing sanctions that now fully ban potash from Belarus.

The conflict should boost Canadian producers such as Saskatoon-based Nutrien, Greenspan said.

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Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.