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Copper prices soar: Potential emergence of a new commodities supercycle

For much of the last two years, copper prices remained stagnant around $8,500 (€7,890) per ton, largely overlooked by commodities traders. However, the metal has surged back into focus, reaching a fresh 2-year high of $10,110 at the London Metal Exchange (LME) on April 30.

According to Sandeep Daga, a director at Metal Intelligence Centre, index funds and exchange-traded funds are drawing retail money into metals, propelling momentum-based buying and keeping selling resistance low. Despite this, Daga warns that excitement may be driving prices beyond reality.

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The current reality contradicts the surge in copper prices, as global growth weakens, suggesting prices should be under pressure due to falling demand. So why is this time different? Why are some experts suggesting the start of a new commodities supercycle, led by copper?

A commodities supercycle is a prolonged period of rising commodity prices across various sectors, driven by sustained demand growth, supply constraints, and broader economic factors.

The last commodities supercycle, affecting iron ore, agricultural products, and minerals, occurred from the early 2000s to around 2014/2015, driven by rapid industrialization in emerging economies like China.

Currently, investors are enthusiastic about copper due to its crucial role in transitioning away from fossil fuels towards renewable energy systems. Joachim Berlebach, CEO of Earth Resource Investments, highlights copper’s indispensability for electrification due to its electrical conductivity.

Michael Widmer, a commodity strategist at the Bank of America, attributes the price rally to global decarbonization efforts, as copper is used across various industries and serves as an economic indicator.

Both Berlebach and Widmer attribute the surge in copper prices to rising demand amid stagnant or decreasing supplies since the last supercycle. Berlebach notes a lack of investments in new mines, resulting in insufficient copper production.

Widmer calculates that annual investments of at least $127 billion are needed to meet estimated copper demand until 2050, yet last year’s investment was only $104 billion. Furthermore, resistance to building new mines due to environmental concerns exacerbates the supply shortage.

Berlebach emphasizes the lengthy process from exploration to production, with new mines taking up to 15 years to become operational. Additionally, declining ore grades necessitate larger mine designs.

Despite existing copper deposits in Germany, domestic production is deemed unproductive and theoretical due to bureaucratic processes. The country relies on deposits in South America and Congo.

Widmer predicts that copper prices will remain elevated in the long term, possibly even experiencing a prolonged supercycle. In the global pursuit of copper, Norway plans to mine minerals from the seabed off its coast, highlighting the growing demand for this essential metal.

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