Copper is a critical component in several areas poised for growth: electric vehicles, wind and solar power, and the infrastructure to store and transport renewable energy.
But according to a July report by S&P Global, there is a chronic gap between copper supply and demand worldwide. The S&P report says this will “seriously impact the entire global economy and affect the timing of net-zero emissions by 2050.”
The authors of the report add, “This study shows that copper supply shortages will start in 2025 and will last for most of the next decade.”
They list eight operational challenges that will affect copper producers in the coming years:
- Infrastructure limitations
- Permit and litigation
- Local stakeholders
- Environmental standards
- Taxes and Regulations
- Politicization of contracts
- Work relationships
- industrial strategies
As you can see, there are plenty of hurdles lurking just at a time when copper demand is increasing and is expected to nearly double by 2035.
In addition, according to the report, “demand from non-energy transition end markets – such as building construction, appliances, electrical equipment and copper hardware and mobile phones, as well as expanding applications in communications, data processing and storage – is also expected to continue to grow. with a compound annual rate of 2.4% between 2020 and 2050.”
So given all the opportunities and challenges, should investors consider copper producers?
Freeport McMoRantracked in the S&P 500 is up 6.84% in the past month, but those recent gains mask the stock’s struggles since April.
Given the strong demand, it’s a little surprising to see the company’s revenue and sales decline. In the most recent quarter, sales actually fell 6% to $5.4 billion. Earnings fell 25% to $0.58 per share.
Investors aren’t overly exuberant about the stock right now, but they haven’t thrown in the towel either. The stock is up 3.2% since the report. The company said lower copper prices were the culprit behind the declines.
Right now, with the stock trading below all the major moving averages, there isn’t enough momentum to play the short-term profit opportunities in your favor.
The situation is a little different for the Canadian company Teck Resources. It has so far rallyed 16% in August, following its July earnings report. Revenue grew 126% to nearly $5.8 billion, while total growth came in at 416%, to $3.25 per share.
Many miners are involved in multiple metals and commodities. Such is the case with Teck, which cited strong prices for steel coal. A weaker Canadian dollar also helped. However, like many companies in many industries, Teck faced rising costs in areas such as fuel, transportation, labor and other costs.
The stock has been consolidating since June and appears to form the right side of its current base. According to data from MarketBeat analystsWall Street has a “moderate buy” rating for the stock.
Southern copper performs well below the broad market. It posted a year-to-date decline of 16.71%, but a fractional gain in the past month.
The company turned a profit at the end of July. Sales fell 20% to $2.3 billion. Earnings rose 3% to $1.25 per share. There has been a slowdown in both the top and bottom lines in recent quarters.
Southern Copper’s current dividend yield is a healthy 8.26%, giving investors at least some relief as the stock languishes.
So where is this for investors if they want exposure to a sector that could benefit from increased demand in the coming years? Especially if there is a limited number of suppliers?
At the moment we are not seeing the increased demand for copper that is forecast. This is one of those situations where industry sales can indeed increase dramatically, but we don’t see it yet. It’s tempting to bag a promising stock ahead of the big run, and it looks like investors have plenty of time to play copper for an epic rally.