The Case for Investing in Copper, the Go-To Metal for Renewable Energy Projects

They call it Dr. Copper, because of its supposed Ph.D. in economics, which allows the industrial metal to predict economic turning points. Lately, with expectations rising for a post-virus boom, the base metal’s price has been trending upward.

But to hear Goldman Sachs tell the tale, copper’s outlook is even rosier, due to its use in the equipment needed for a greener world. In a new report, the firm pronounced: “Copper is the new oil.” Meaning, it stands to be the commodity that runs the world, which used to be said of petroleum.

At this stage, though, not everybody is wild about this metal, not to mention other commodities, known for their volatile prices. State and local pension plans don’t have much invested in commodities, and thus in copper in particular. They hold just 2.1% of assets in commodities, per the Public Plans Database.

The industries that demand copper are in the automobile, electronic, and construction trades. The metal has many uses, but a primary one is to conduct electricity. Copper will be a vital component in wind turbines, solar panels, batteries (necessary to store renewable energy), and electric vehicles (which use five times as much of the metal as regular ones), Goldman argued.

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“The critical role copper will play in achieving the Paris climate goals cannot be understated,” Goldman analysts, led by Nicholas Snowdon, wrote in a note to clients. The investment house is bullish on commodities in general.

Copper prices are expected to rise as the shift to green energy accelerates and the supply of the metal tightens, the Goldman researchers declared. Right now, the metal already is in a tight market as the economy’s pace quickens, and demand from China has come back, part of the reason why the firm raised its forecasts on copper.

Copper traded around $8,900 per metric ton on Thursday, according the London Metal Exchange (LME). Goldman predicts prices to average $11,000 over the next 12 months. And $15,000 by 2025.

The S&P GSCI Copper Index is up 17.9% this year. The metal has staged a steady comeback since last March, when pandemic fears sent it skidding to a decade low. In fact, copper prices had been in a slow decline since 2011, amid tepid economic growth following the financial crisis.

But the shift to renewable energy will grow nearly 600% by 2030, Goldman contended. “Ripple effects into non-green channels mean the 2020s are expected to be the strongest phase of volume growth in global copper demand in history,” Snowdon said. But the growth will be choppy, he added, saying the copper market is “unprepared for this critical role.”

For one thing, copper’s recent history of little price appreciation has led to under-investment in copper mines, the report observed. Capital expenditures have been flat in the past year, running at an average of about $15 billion per quarter in total from the eight largest players.

So expect a large supply shortfall to begin around the middle of the decade, with a big supply gap by 2030, Goldman says. It will be double the gap that led to copper’s bull market in the early 2000s, the firm said.

“Copper is so integral to the green transition—a global effort underpinned by government support—that the supply requirements necessitate a spike in copper prices,” the firm said. There’s “no decarbonization without copper.”