Could this be a structural bull market for copper? It could well be, although the ride may be bumpy and not without risks. While certain trends, such as the path towards greener forms of energy, are likely to be reassuringly long-term and support sustained demand for the red metal, one potential cloud on the horizon is a slowdown in China (although the authorities are taking steps to address this) as the focus shifts from the quantity to the quality of growth.
This potential headwind is counterbalanced by several positive considerations; copper is primarily used in electrical wiring which tends to be used in the latter stages of the building process, thereby limiting the immediate impact of a slowdown in new construction. Our view is that a pickup in other areas of copper demand like white goods, autos, machinery and grid spending may also help to offset property weakness. Moreover, copper inventories are at record lows and supply is tight. It therefore looks unlikely that the copper price will be held hostage to a stalling of Chinese growth, even if this were to materialise in force.
Copper demand sources are well-diversified, and we believe the metal could form part of an armoury of return-seeking assets, designed to benefit as the recovery unfolds. While copper exhibits some inherent volatility, in our view it has an enviable position as a means of playing both the upswing in industrial activity and the move to embrace dominant 21st century trends, including the ‘greening’ of economies and the need for enhanced connectivity through 5G networks.
Catherine Doyle, Investment Specialist, the Newton Real Return Team.
Doc ID: 805505