GFC history suggests copper will go on a colossal bull run in 20212 Dec 2020 22:03
Copper prices are now at seven-year highs, driven by China’s post-pandemic infrastructure drive.
There are echoes here of the post Global Financial Crisis (GFC) period, circa 2010, when world #2 economy China began spending mountains of cash to keep its economy growing.
A huge chunk of this spend went into infrastructure construction, which had a direct impact on metals prices. Iron ore, nickel and copper are just a few that rebounded strongly in the ensuing period.
The same thing is happening right now.
According to Todd Warren, head of research at Tribeca Investment Partners, the outlook for copper is even more bullish this time around.
“Certainly, the anecdotal evidence that we have seen indicates China is pressing the pedal to the metal,” he told Stockhead.
“It’s as big, if not bigger, than it was post-GFC.
“But what is really exciting is that post-GFC they were still massively export driven as an economy. Today China is consuming all of it domestically.
“Which means when the rest of the world’s economies recover from COVID-19 it paints a pretty bullish picture for copper demand.”
Then there are copper’s well known supply issues.
On average, it takes seven years to get a new mine up and running, from first successful exploration hole to first tonne of dirt out of the ground.
But the resources sector’s long, drawn out downward trajectory –which bottomed around the end of 2015, early 2016 — meant there has been a lack of investment in new mines.
Sandfire Resources (ASX:SFR), one of a only a few copper-focused producers on the ASX, is building a new mine in Botswana.
Using strong cash-flow from its company-making DeGrussa mine in WA (the company had ~$304m in the bank at the end of September) Sandfire will spend ~$350m to build the T3 Motheo copper-silver project.
Rio’s world-class Winu discovery in WA is also ostensibly being fast-tracked to production.
But the reality is there is very little new supply coming through the pipeline, right when we need it the most.
We are now entering a structural bull market for a number of different commodities, especially copper, Warren says.
“We are really very excited about the prospect of 2021 for the resources sector. Copper is one of our preferred plays,” he says.
“Could it blow off and overrun on the topside? Absolutely. We’ve seen this before. Looking at post GFC period, copper ran to +$US4.50/lb.
“And China’s economy is that much bigger than it was eight, nine years ago.”
But copper won’t just be a 2021 story.
Looking forward, the rollout of electric vehicles is going to be a huge demand driver for copper.
“You need roughly 3.5 to 4 times as much copper in an EV than you do in a standard internal combustion engine,” Warren says.
“Copper is a roughly a 22 million tonne a year market today. Based on fairly conservative assumptions, copper in EVs will go from near zero to at least 2 to 3 million tonnes by 2030.
“10 years is not very f
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