Seizing the Copper Shortage Opportunity

Capitalizing on the Copper Shortage: A Compelling Long-Term Opportunity

Sept 25, 2023

A Copper Shortage will impact this market for years unless swift action is taken to tackle the supply gaps. The solution lies in boosting exploration and mining output. However, starting a new mining operation is neither quick nor straightforward; it’s a slow and intricate process. As a result, copper demand will likely outpace supply for an extended period.

The copper supply is predicted to face major deficits until 2030 due to unrest in Peru and rising demand from the energy transition industry, according to Wood Mackenzie’s Robin Griffin. Peru’s protests have led to mine closures, impacting its 10% global copper supply contribution. Chile, the top copper producer at 27%, also saw a 7% YoY decline in output. Despite disruptions, experts like Timna Tanners foresee new mines in 2023. China’s reopening and the energy transition’s demand have strained copper resources. The supply deficit might persist until 2024-2025, potentially doubling copper prices. Electrification, especially in EVs and charging infrastructure, will escalate copper demand due to their copper-intensive nature. The energy transition’s growth poses a significant long-term challenge for copper supply.CNBC

McKinsey’s Forecast: Impending Global Copper Shortage

McKinsey predicts that global electrification will raise copper demand to 36.6 million tonnes by 2031, while supply is estimated at 30.1 million tonnes, creating a 6.5 million tonne deficit. Green uses of copper are set to rise from 4% in 2020 to 17% by 2030, and achieving “net-zero emissions” would necessitate an extra 54% of copper. S&P Global envisions demand nearing 50 million tonnes by 2035, but mining output growth of 2.69% annually would still only reach 31 million tonnes. Experts stress the current and future supply gaps, driven by the demand surge from EVs, renewables, and electricity grids. The copper market faces tightening supply constraints and a substantial gap over the next decade. Mining.com

The monthly chart of copper

The best scenario involves some pain. So, if you hold too many options on TGB, consider reducing them when you see some profit or even closing out at a breakeven or small profit. Some of you have large positions, which isn’t advisable. The potential for this sector to experience a significant surge is higher than usual. Thus, even if one incurs small losses multiple times, one could still make substantial gains in this sector if you don’t bet the house.

Regarding the ideal situation, it would be preferable for copper to test the range of 4.20 to 4.44, then sharply pull back, dropping to the range of 2.80 to 3.00 within the next 6 months. If this sequence unfolds, there’s a strong likelihood, nearly 90%, that several of our indicators will trigger a massive positive divergence signal. At that point, the only logical action would be to jump in and back the truck up.

There are a couple of resistance points to consider:

The first resistance point comes into play within the range of 3.90 to 4.02. A weekly close at or above 3.90 (ideally higher) should lead to a test of the range between 4.25 and 4.44.
The second resistance point is at 4.47. If there’s a monthly close at or above this level, copper will be poised for a significant rise. This will result in several stocks nearly tripling in value, with some smaller companies like TGB, HBM, and LUNMF potentially seeing gains of up to 600% from their lowest to highest points.

Copper weekly chart

When our MACDs show a bullish crossover around the neutral zone (where they are now), the movement tends to be swift and intense. The bullish crossover is nearly finished, and if it is completed, copper should be capable of testing the range of 4.25 to 4.44 without much difficulty. This implies that stocks like TGB should do well. Unfortunately, there aren’t 2025 options available for this stock. The pattern looks promising, but the stock is taking its time to gain momentum.

Insights from Previous Market Updates

Copper stocks are already diverging, indicating that the metal will likely play catch up in the coming months. So from a long-term perspective, recent declines in copper’s price should be viewed through a bullish lens. A weekly close at or above $3.90 could propel it very quickly to the $4.25 to $4.44 range.

There are signs that copper may put in a double top formation, pull back sharply, bottom and then rally to new highs. In other words, an elaborate head fake setup may be in the works. Regardless of any short-term volatility, the long-term outlook remains bullish, given the divergence in copper stocks and their signal that the metal is poised for gains. Market Update July 10, 2023

Copper stocks continue to outperform the metal in terms of gains, with only a few stocks lagging behind. On the weekly charts, it still has significant potential to run higher before reaching the overbought zone. Additionally, on the monthly charts, it is trading in the extremely oversold zone. Therefore, any sharp pullbacks should be seen as opportunities for investment.

A positive development is that it managed to close above 3.90 on a weekly basis. As long as it doesn’t close below 3.60 on a weekly basis, it should remain in a position to challenge the 4.25 to 4.44 range, with a possibility of surpassing it and reaching 4.60. Market Update August 16, 2023

Conclusion

In conclusion, the global copper market faces ongoing supply deficits and surging demand, impacting industries vital to the economy. Copper’s crucial role in electrification and infrastructure development underscores its immense value, making it a pivotal factor in economic growth and sustainability. Investors should vigilantly track these developments, recognizing the profound economic significance of copper in our modern world.

FAQ

Q: What is the current status of the global copper supply?

A: The global copper supply is facing significant challenges, including supply deficits, unrest in major copper-producing countries like Peru, and rising demand from the energy transition industry.

Q: How long is the copper shortage expected to last?

A: Experts suggest that a copper shortage may persist until at least 2024-2025, potentially doubling copper prices.

Q: What factors are contributing to the copper shortage?

A: Factors such as protests in Peru leading to mine closures, declining output in top copper producer Chile, China’s reopening, and increased demand from the energy transition industry are straining copper resources.

Q: How is electrification affecting copper demand?

A: The push for electrification, particularly in electric vehicles (EVs) and charging infrastructure, is significantly increasing copper demand due to their copper-intensive nature.

Q: What do experts predict for future copper demand and supply?

A: Projections indicate that copper demand will continue to rise, potentially creating a substantial gap (copper shortage) between demand and supply over the next decade, driven by the surge in demand from EVs, renewables, and electricity grids.

Q: Are there any potential investment opportunities in the copper market?

A: Some experts believe that the copper market presents investment opportunities, especially if certain price ranges and technical indicators are met. However, investing in commodities involves risks, and careful consideration is advised.