Copper: An Industry Poised for at Least Five Years of Growth

"Dr. Copper"

Copper is often referred to as "Dr. Copper" because of its role as an "economic forecaster" in global economic and industrial activities. This nickname reflects copper's acute ability to predict economic health through its price fluctuations. This is due to copper's wide range of applications: copper is a key raw material in core sectors such as electricity, construction, manufacturing, new energy (electric vehicles, photovoltaics), and electronic devices. Its demand directly reflects:

– Industrial production activity (e.g., factory operating rates)
– Scale of infrastructure construction (power grids, real estate)
– Demand for consumer electronics (phones, computers)
– Progress of green transition (the amount of copper used in each electric vehicle is four times that of a fuel vehicle)
– Economic barometer: When the economy is expanding, industrial activity increases, pushing up copper demand and prices; when the economy is in recession, demand shrinks leading to a decrease in copper prices. If we combine its uses, 70% of copper is used as a conductive material.

For example, in power grids and motors (new energy vehicles). Therefore, the essence of copper is "electricity". With the growth of the global economy, the continuous rise in electricity consumption will lead to a sustained increase in the demand for copper. Electricity is the most direct form of energy use in our society.

The above is a concentrated reflection of the commodity attributes of copper. As a widely used metal material, copper is closely related to many industries.

Long-term Supply-Side Rigidity

Copper, as a non-ferrous metal, exhibits super-cycle properties.

1. Demand determines direction, supply determines elasticity. In other words, when we determine that the demand curve for a certain commodity is upward, we need to pay special attention to the supply side. If the supply side is not very elastic, it is likely to present significant investment opportunities. What does supply rigidity (low elasticity) mean? When the price of a commodity rises due to increased demand, the supply of the commodity grows very little. This means that no matter how much the price increases, no new products can be produced in the short term. Thus, prices can only increase significantly until someone is willing to sell their stock.

2. From a 3-5 year dimension, copper exhibits supply rigidity. Copper, as a resource product, goes through a long process from "exploration to feasibility study to development". From discovering a mine to development, it takes 17 years. This means that short-term demand increases cannot be met by new mines, making the supply amount relatively fixed. In the copper field, we have sufficient data to depict this rigidity.

The left half of the above chart shows the number of new mines discovered each year since 1990. Since 2009, the number of large mines discovered each year has plummeted. From 1990 to 2019, a total of 224 copper mines were found globally, with only 16 discovered between 2009 and 2019, accounting for less than 10%. If we calculate based on the 17-year production time, 2008 was the last big year for exploration, and any new mines discovered then should be in production now. Moving forward, one can expect no significant new mines coming into production, indicating no substantial increase on the supply side. Keen-eyed investors might ask, can old mines have a second spring? I can only say, you are thinking too much. As shown in the upper part of the chart, the grade of new mines has decreased significantly, and old mines will only become more depleted with mining. Thus, from the visible future over the next 10 years, new mine production will see low growth. Specific data: the growth rates for the three years 2025-2027 will be 2%, 3%, and 1%, respectively. This is plain information.

The Fed's Interest Rate Cut Call Option

1. In addition to its commodity attributes, copper also has financial attributes. Simply put, metals are money. Over extended periods, metals and fiat currencies inherently act as substitutes for each other. When the public believes that fiat currency is depreciating, the first idea is to exchange money for widely tradeable items like precious metals, copper, etc. Currently, copper is priced in dollars. The strength of the dollar also determines the trend of copper prices.

Since the "stable genius" took office, the dollar has been in decline. With the October 12 confrontation coming to an abrupt end, it reflects America's irreversible decline.

2. The Fed's Interest Rate Cut Call Option Currently, the supply of copper itself is rigid, and demand continues to grow. Supply and demand are in a tight balance. If the Federal Reserve resumes interest rate cuts, which it inevitably will because the US needs to finance its $2 trillion annual deficit with more debt issuance. How long can the "prosperity" of this country of "three highs" last, and how will its fall affect the domestic capital market? To reduce fiscal burdens, the "stable genius" must get the Fed to cut rates. More funds will then flow into copper commodities. If speculative demand arises, similar to the trends seen in gold over the past couple of years, this speculative demand as a marginal increment will push copper prices very high. Conclusion In this article, we focused on analyzing copper's rigidity from the supply side. The demand side is in a stable growth phase (strongly correlated with global GDP), so it can be concluded that copper has holding value within a foreseeable range. You can find out which domestic copper giants there are. See below why the giants can always rise. Find a comfortable time to get on board; wouldn't that be steady happiness? The key is that the evaluation of this part is still in the bottom range.