Dr. Copper" is once again living up to its reputation. This anglicism reflects the particularly high economic sensitivity of copper. Because of its many different possible applications, demand and price are heavily dependent on the ups and downs of the global economy. Copper has become almost 30% dearer over the first four months of the year (see chart). Indeed, this rise is more than 100% when compared with the multi-year low reached in March 2020, when the Covid-19 pandemic began. The fact is that the value of this important raw material is being driven by the economic recovery. China, the largest buyer of copper, is especially seizing the moment. The mix of state economic programmes and ultraloose monetary policy prevailing across the world is also giving upward momentum to prices. This is all the more so because politicians are pushing a variety of mega-trends with the trillions spent on aid packages. One of the main areas of emphasis is the fight against global warming.
In its "World Copper Factbook 2020" the International Copper Study Group ICSG lists a total of seven growth fields for copper. These include e-mobility. "Electric vehicles contain some four time as much copper as conventional cars," write the authors of the publication. The red metal is used in batteries, coils and rotors as well as cables, busbars and the charging infrastructure. Along with mobility, energy generation is being transformed. The particular conductive properties of copper make it equally useful in wind turbines and photovoltaic technology. At the same time, the industrial metal is being used in the fast-growing battery segment, which is important for the energy transition. The construction sector has always been a major buyer of copper. According to the ICSG, this branch of industry accounted for 28% of global demand in 2019. With the trend towards smart city infrastructure, the significance of this raw material here is set to climb still further. In this innovative type of urban development copper can be used in the IT network or sustainable heating systems, for instance.
As is typical of the raw material market, production plays a central role in the price outlook alongside demand. The most important copper supplier is Chile: two of the world's five largest mines are located in the South American country (see chart). Prominent among these is "Escondida", with 1.4 million tons of copper buried in this mine situated in the Atacama desert. In addition to copper wire and coils based on mine production, recycling plays a major role in this market. Copper can be reused as often as desired without suffering any loss of quality. It also consumes less energy than is the case with the extraction of ores. The ICSG estimates that in 2018 almost one third of global copper use came from recycled material. Not only does the industry association supply a wealth of information on the origin and use of the industrial metal, but its forecasts in particular are given a lot of weight on the raw materials markets. In the update on the 2021 outlook presented by the ICSG at the beginning of May, the estimate presented last autumn was confirmed. According to this, the situation is expected to ease and a slight surplus is expected on the world market.
In response to the enormous momentum of the most important industrial metal, Leonteq has launched a new tracker certificate on copper. The product takes the direct approach: the underlying is the futures contract traded on the COMEX and due in July 2021. The expiring future is swapped out on the adjustment dates. The rollover process typical for such raw materials investments will take place for the first time on 24 June 2021. On that date the product will change to the copper contract due in September 2021. At the moment this future actually costs a little less than the initial underlying, so no rollover losses are expected initially. As time goes on the futures curve for copper trends downwards (see chart), a phenomenon known in the trade as backwardation. This constellation is typical for market phases which are dominated by fears of scarcity. Changes may occur at any time, depending on the price and in particular how the supply and demand situation progresses. What is certain is that the term of the tracker certificate ends in two years. Until then investors participate directly in this key industrial metal.
We look forward to answering all of your questions about our products and how they are traded. Please don't hesitate to get in touch! Phone: 058 800 11 11, email info@leonteq.com or contact us here.
