Copper prices continue to reach new record highs daily, soaring to $5.17 per pound on Tuesday, driven by improving market conditions.
The metal has surged over 30% year to date, setting the stage for its best-performing year since 2010. Additionally, copper has jumped 28% in the last two months, marking its best two-month streak since April 2009.
The performance of copper miners has also been outstanding. The Global X Copper Miners ETF (NYSE:COPX) has achieved 12th positive weeks in the last 14, rallying 40% year to date.
Two primary factors are fueling the rise in copper prices: increasing demand from electrification and strategic stockpiling by China.
Electrification Demand Kicks In
Bank of America analysts noted that "renewables, EVs, and other new uses of copper – such as data centers and AI – combined with supply-side issues are driving tight markets."
The investment bank also highlighted that decarbonization efforts lead to higher metal usage, often replacing hydrocarbons with electrification, which translates to more copper usage.
China's Strategic Stockpiling
A significant dynamic in the copper market is China's hoarding of copper.
Macroeconomist Andreas Steno Larsen highlighted in a recent post that China's copper inventories are at an all-time high for this time of year.
"Something is cooking in China," Larsen remarked on social media platform X. He explained that China typically uses its copper stock at this time of year, but instead, they are building their stockpile while copper prices surge.
Larsen suggests that China is gearing up its green tech capacity, predicting that European markets will be inundated with subsidized Chinese solar panels, EVs, and wind turbines through 2024 and 2025.
This strategic move has allowed China to secure a strong supply chain, challenging European companies' competitiveness.
The economist warned that the upcoming weeks are going to be crucial for copper markets as the Yangshan Copper Cathode is now traded at a discount to LME spot, which is highly unusual.
The market will closely watch whether China decides to export copper, or if this stockpiling is a deliberate strategic move to dominate supply chains.
"We are betting on the latter," Steno Larsen stated.
SOMETHING IS COOKING IN CHINA China typically uses its stock of Copper this time a year. Instead they are building stock, while the price of Copper surges. Are you paying attention? More -> pic.twitter.com/HkJDzf2W5g
— Andreas Steno Larsen (@AndreasSteno) May 19, 2024
Top Copper-Linked Stocks Recommended by Bank of America
Bank of America has identified three top copper-linked stocks for investors:
Antofagasta plc (OTCPK: ANFGF) as a volume-growth story.
Freeport McMoRan Inc. (NYSE:FCX) considered "a go-to blue-chip copper exposure."
TECK ResourcesLtd (NYSE:TECK): Following the sale of its coal assets, TECK has become a new, inexpensive copper "pure play" with growth options.
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Image generated using artificial intelligence via Midjourney.
