Copper at $40,000? Here’s The Trade

Luca Copper Concentrate Copper at $40,000? Here's The Trade

Most American investors might not recognize Pierre Andurand’s name, but they should. As a hedge fund manager, he has a remarkable track record in commodities with his Andurand Capital funds. Despite a loss last year, his main fund has achieved an annualized net return of 34% since its inception in June 2019. One of his funds saw gains exceeding 100% through March 2022, largely due to rising oil prices.

Earlier this year, Andurand profited significantly from cocoa prices hitting a record $11,722 per metric ton, after tripling in just over a year. Climate change is causing shortages in cocoa and coffee beans.

Andurand’s $1.3 billion Commodities Discretionary Enhanced fund is up 83% so far this year, and now he’s eyeing copper.

$40,000 Per Ton Copper

Andurand predicts that copper (HGN24) will soar to $40,000 per metric ton, far above its current trading price of about $10,290 a ton. Copper has already risen 21% this year, reaching a record $11,000 a ton recently. Andurand believes this rally will continue as supply struggles to meet growing demand.

In an interview with the Financial Times, he stated, “We are moving towards a doubling of demand growth for copper due to the electrification of the world, including electric vehicles (EVs), solar panels, wind farms, military usage, and data centers. I think we could see $40,000 per ton over the next four years. It won’t stay there indefinitely; a supply response will eventually occur, but that will take more than five years.”

A study by S&P Global (SPGI) found that it takes an average of 15.7 years from discovery to production for new mines. The recent bid for Anglo American (OTC:NGLOY) by BHP Group (NYSE:BHP) highlights the difficulty and expense of building new mines versus acquiring existing ones.

Metals Bull Run

Andurand is not alone in his bullish outlook on copper and metals. Futures market traders have pushed metals prices, including copper and gold (GCM24), to all-time highs. Copper has surged 30% since March, lifting other industrial metals like aluminum and zinc by 15% to 28% since April.

Last year, strong demand reduced inventories to historic lows, yet prices dropped due to widespread shorting of metals on Wall Street.

A research paper by the International Energy Forum (IEF) found that to meet business-as-usual trends, 115% more copper must be mined over the next 30 years compared to historical totals. Electrifying the global vehicle fleet will require 55% more new mines than otherwise needed.

Copper demand was robust in 2023, growing 7.3% year-on-year in the first 10 months, according to the World Bureau of Metal Statistics (WBMS). Nearly all of this growth came from developing countries like China, India, and Indonesia.

China is well-known as the largest consumer of copper, but India and Indonesia are also seeing rapid growth. India is expected to nearly quadruple its annual copper consumption over the next decade, mirroring China’s fourfold increase from 2000 to 2010. Indonesia is forecast to quintuple its copper consumption in about a decade.

This Copper ETF Is A Buy

Addressing the supply issues underlying copper’s rally will be challenging. The tight supply, coupled with increased demand from AI and EV sectors, means we’re at a crucial point for global copper demand.

While copper might not reach $40,000 a ton, it is on an upward trajectory. A good investment strategy is to consider an ETF focused on mining companies with significant copper exposure. The iShares Copper and Metals Mining ETF (ICOP), which holds 35 stocks, is a solid choice. It is up over 27% year-to-date and about a third since its inception in June 2023. It’s a buy around its current price of $32.59.

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About the author: Stephanie Bedard-Chateauneuf has over six years of experience writing financial content for various websites. Over the years, Stephanie has covered various industries, with a primary focus on tech stocks, consumer stocks, health stocks, and personal finance. This stock lover likes to invest for the long-term. Stephanie has an MBA in finance.