Tracy Shuchart | January 24th, 2022
METALS INTEL – COPPER
Greenflation is real….not transitory!
On January 8th 2022, Isabel Schnabel, an influential member of the executive board of the European Central Bank, gave a speech in which she articulated: the transition is needed, but’s likely to prove inflationary.
“Central banks, in turn, will have to assess whether the green transition poses risks to price stability and to which extent deviations from their inflation target due to a rise in the contribution from energy to headline inflation are tolerable and consistent with their price stability mandates.
I will explain that there are instances in which central banks will need to break with the prevailing consensus that monetary policy should look through rising energy prices so as to secure price stability over the medium term.”
Europe and North America have committed to transition at all costs, and even asking Central Banks to look past inflation to get there.
That brings us to copper. China, once the largest consumer due to their insatiable appetite in growing the property sector, will no longer be the buyer of last resort as the West pushes forward relentlessly in their quest for net zero agenda and Paris Accord commitments. Thus, the collapse in the Chinese property sector and subsequent decline in macro indicators will have minimal bearing on global copper demand as Western demand accelerates.
A big part of this transition push includes Electric Vehicles (EV’s)
Copper required for EV’s (battery not included)
Conventional ICE vehicle: 18-49 lbs
Plug in hybrid electric vehicles: 132 lbs.
Battery electric vehicles: 183 lbs.
Hybrid electric bus: 196 lbs.
Battery electric bus: 814 lbs.
(Copper can easily be shaped into wire, which is important for most electrical applications. It’s also important to note that temperature does not affect copper’s conductivity, which makes the metal ideal for automobiles in all climates.)
IEA projection of EV growth from 2020 at 4.3% to 2030 at 60.9%
Even if this projection is overly optimistic, by 50% we are danger of a huge copper supply deficit.
Although EV’s are the largest portion of demand. Copper is also needed for solar, wind, and EV charging infrastructure.
Global Green Copper Demand
In fact, we are already starting the year in deficit.
Metals mining, including copper, has suffered from the same lack of CAPEX over the last seven years, that oil has.
Commitment of Traders suggest that the copper market is increasingly under invested
CHARTS OF INTEREST
Copper looks relatively cheap to tech -Crescat Capital
The commodities-to-equity ratio is now at even lower levels than at other times when we experienced other major macro regime changes, such as the early 1970s and 2000s. Both times we had the stock market trading at excessive valuations while commodities were at depressed levels – Crescat Capital.
European Miners are just off the lows relative valuations
Industrial metals rally may imply further out performance for miners
IN SUMMARY: Continued deficit, low stocks and structural under-investment to support repricing higher. The best way to play this, I believe is miners versus the actual metal, as futures prices tend to be very volatile and the mining sector is under invested.
Top picks all high dividend stocks
Southern Copper (NYSE: SCCO)
Atalaya Mining (LON:ATYM)
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