Key takeaways
- Copper pricing may reach record highs next year, but any dramatic spikes are likely to be temporary.
- Over the long-term, government policies surrounding EVs in the U.S. will likely drive up the price of copper by increasing demand.
- Increases in demand for copper are more likely to be gradual rather than abrupt, if they materialize at all.
In 2023, Goldman Sachs is predicting that copper prices will reach record high prices of $11,000 per tonne. Today we’ll take a look at why there’s a projected price spike, and some stocks that could stand to benefit over the short term.
As you learn about the copper market, remember that speculative investing is typically a quick way to lose money. Timing market trends is tricky at best and by all reasonable expectations, impossible. That doesn’t mean copper and other commodities like it aren’t meaningful additions to your portfolio. In fact, holding commodities in your portfolio can help offset the effects of inflation.
Why are experts predicting a rise in copper prices?
The first reason is that stores are dangerously low, according to commodity trader Trafigura. Earlier in the fall, Trafigura’s data revealed that the world only had enough copper stores to cover 4.9 days of production, and predicted that stores would shrink to 2.7 days by the end of the year.
On top of these low stores, there’s reason to believe China may begin ramping up its industrial production in coming months. After years of highly restrictive COVID-19 policies, recent protests may force the government to reevaluate its pandemic strategies, which could lead to factories operating at higher capacities than they have in quite some time.
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In the short term, these circ*mstances are likely to result in dramatic price swings, including the projected price spike in 2023.
There are reasons to speculate that copper value may go up over the long term too, though to what degree is still unknown. Copper is a key component in green energy technologies, notably electric vehicle (EV) production.
With President Biden’s call to significantly ramp up EV production over the next seven to eight years, demand for copper could go up. But at the same time, the supply issue is expected to stabilize over the next 12 months, so the increased demand may not cause dramatic price hikes in the commodities markets over the long term. Increases in copper prices in response to increased demand are likely to be measurable over the next decade rather than the next year.
Copper Stocks to Watch in 2023
As environmental laws become more strict, it’s getting harder and harder to open new mines. That makes the stocks of the biggest, most established mining companies some of the best to keep your eye on.
BHP Group Ltd. (BHP)
BHP Group Ltd. is one of the world’s largest mining companies. Headquartered in Australia with mines all over the planet, it’s already the world’s largest supplier of copper. On top of this head start, BHP has implemented strategies to grow this branch of its business even further.
Near the close of 2022, BHP posted profits of $16.9 billion – already dramatically higher than the profits of $6.9 billion in 2021. It’s even higher than the profits of $9.4 billion in 2020 and the pre-pandemic $6 billion of profit the company brought in 2019.
With such market dominance, BHP is well positioned to benefit from any copper pricing increases that might occur in 2023.
Southern Copper Corp. (SCCO)
BHP mines more copper than Mexico-based Southern Copper Corp., but the smaller company is primarily focused on this specific metal.
Annual gross profit has been on the rise at Southern Copper Corp. since 2019 when it brought in $3.79 billion. In 2021, that number was up to $7.15 billion. This number is expected to fall in 2022, but only because the company has made expansive investments in its mines throughout Mexico and South America. These investments are expected to yield more profit over the long term.
If the price of copper does spike, this is one company that is likely to reap some of the monetary benefits.
Newmont Corporation (NEM XEM )
Newmont Corporation is an American company that primarily focuses on gold. But the Colorado-based company also has significant copper mining operations.
Net income has been erratic over the past several years, starting at a loss of $76 million in 2017, peaking at $2.88 billion net income in 2019, and settling down to $1.11 billion in 2021. All of this turbulence is offset by the company’s 96 million ounces of gold reserves, which help stabilize business operations.
If copper prices spike, Newmont Corporation could move closer toward net income growth and reverse its current downward trajectory. Despite high operating costs in 2022, the company isn’t considered incredibly risky due to its extra liquidity buffer held in gold.
Barrick Gold Corporation (GOLD)
Unsurprisingly, Barrick Gold Corporation’s bread and butter is gold, but it also dabbles in copper mining. The company caught a huge break this year when Zambia, home of one of its largest copper mines, announced plans to restructure and ultimately lower mineral royalty taxes on copper.
The company’s net income has been on a downward trajectory over the past few years, but the decreases are basically incremental. In 2019, Barrick Gold Corporation’s net income was $5.27 billion, falling over the next couple of years to $2.54 billion in 2021.
The tax reduction alone would be reason to suspect a better bottom line for Barrick’s copper mining operations moving forward. If price spikes happen in symphony with this tax relief, the financial gains could look even rosier for this sector of its business.
Freeport McMoRan (FCX)
Mining company Freeport McMoRan is headquartered in the United States. This fall, they entered talks with the Indonesian government to extend their copper mining rights in the country for an additional 19 years, which could indicate they found larger copper deposits than initially expected.
Freeport McMoRan’s net profits have been on an upward trajectory since 2019, when the company logged a net loss of $245 million. Net profits jumped up to $596 million in 2020, and then shot up even further to $4.3 billion in 2021.
If Freeport McMoRan did find larger copper deposits than expected, it could position them well for both the immediate shortages and upcoming ones further in the future.
The bottom line
If current market circ*mstances cause a rise in copper pricing, it’s not likely to be permanent. Experts are projecting price swings as the impacts of the pandemic continue in their unpredictability.
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