I have followed commodities, and more specifically copper fundamentals for over 20 years. When the facts change so must we as investors, to paraphrase J.M. Keynes. I recall a 2008 comment by Fulvio Conti, then CEO of Italy’s largest power company Enel, who famously stated, “fuelling power plants with natural gas is like burning champagne.” Then came the discovery of massive new reserves of natural gas rendering the then accurate comment, useless.

If you are reading this, you surely follow the copper market. My friend John Gross in NYC was kind enough to provide me a 20 year chart displaying the copper price and total warehouse inventories (that we know about).

My notes highlight four unique periods of ebullience that copper fundamental(s) investors witnessed over this never before seen commodity (China) super-cycle. I say this with confidence, as the fifty years before this period, a 0.10 move in the copper price was material, while a 0.25 move was absolute bliss for punters and punishment for end users. That said, the price move is not what one should glean from the below picture, everyone knows that all commodities ~5X’d in this period. The real question is why, who benefits and for how long? Spoiler alert, end-users detest price moves (on the way up) that you see in each period below. 

Even though copper prices have averaged ~$3.00 /lb over the past 15 years, the reality is for most of this period investors were almost always climbing a wall of worry, there was very few times of ebullience. Furthermore, every Jr. Mining Investor must appreciate that almost no entity, enterprise, or nation wants high commodity prices, including copper. They are the ones who pay! If speculators can influence the price down, as they have for some years, these end-users are very happy to pay muted prices.  

What is the real value of any commodity? What about copper? That is a very difficult question to answer, especially as the global energy mix enters a hinge of history that last occurred ~120 years ago. There is an unstoppable transition in energy – due to technological advances, will of the voter and decarbonization – where electrification goes from ~19% to ~50% of final energy usage in your lifetime. There is no model that can capture the gravity that this pivot will have on the great enabler of this electrification – COPPER. 

I leave you with one final note. If the Saudi oil attack, that disrupted ~5% of global oil production, occurred in copper, where would the inventory come from? There are no massive, fungible, available, deliverable etc, etc, reserves of copper in most countries like there is in oil. Japan has ~250 days worth of oil, China 1.1B BBLs in Strategic Petroleum Reserves SPR, USA 680M BBLs in SPR.  Total copper inventories would last 10 days based on current global demand! There is no contingency, yet, it is the commodity that could see as high as 5% CAGR demand growth in the next 10, 20, 30 years.

Irrespective of waiting for an “act of God” to impact a large copper mine, there are many drivers that will eventually move the copper market – most probably, it will be a flock of speculators. 

Happy investing.

Gianni