Looming Cooper Shortage: What to Expect
Another day, another conference.
Turns out, mining-related conferences are often clustered together. And I think I’m approaching the end of it…
Although, it’s worth pointing out that I have kept many baristas in a job over the past two weeks.
If you missed out yesterday, I’ve gone straight from a gold conference in Sydney…to another industry gig in Melbourne.
The difference though, is that this one comes with a free protest…
There’s more than just Adani
Today’s entry into ‘Jeff’s Shed’ was much easier than yesterday’s.
Don’t get me wrong, there’s still hundreds of people with signs. But the police were much more prepared. No one got pelted with a sign this morning. Plus the horses didn’t need to charge at the crowd…
It’s worth noting a couple of things about the protesters, though. And that’s the diversity of the crowd.
There’s not one ‘type’ here. The people are from all walks of life.
Nonetheless, I saw at least a dozen protesters holding signs about the Adani mine in North Queensland.
I joked to a banker in a suit walking next to me, ‘I wonder if they know there’s more to mining then just coal?’
Then I was booed at and filmed on a protester’s mobile phone as I walked into the building…
Should we point out exactly what that phone is made of?
Or what about all the hundreds of litres of water required for every cotton t-shirt I saw in the crowd? Dare I mention all the oil in the rubber soles of their shoes…
Nonetheless, the booing, jeering, and taunting has created a sort of unity on the inside.
And it was rather ironic, that the International Mining and Resources Conference (IMARC) on Tuesday’s first panel was discussing how to reduce the impact of mining on the environment.
What followed that though, is what investors should pay attention to…
The force behind copper’s shortage
There were three big themes from yesterday.
One that I’m noticing is picking up steam in wider circles now is copper.
Although as I discovered at the Sprott Natural Resource Symposium back in July, copper’s shortage isn’t a demand one.
The force behind copper’s shortage is a supply one.
And that was reiterated yesterday.
The demand for copper is growing at a faster rate than the supply of copper.
See, the base metal is commonly referred to as ‘Dr Copper’ because of its links to use in construction.
That is, you can’t build a house without copper in the electrical wires or in the plumbing.
Generally, the price of copper is linked to the overall growth of the global economy.
But in this coming decade, Dr Copper may take on a different name.
In two short months it will be 2020.
And this new decade will be the decade of electrification.
Not just in bringing light to people’s homes…but everyday goods becoming more and more connected.
Think of it like this.
Pretty much every appliance in your house has some form of copper in it.
But as all our white goods become ‘smart’ white goods — that is, the ability to connect to the internet — they will need ever larger amounts of copper.
This is happening at the same time that cars need more copper.
Sure we don’t have the self-driving cars the Jetsons promised us. But cars rolling out of the plant are getting smarter.
In order to have a car with driver assist braking, auto reverse parking, and blind spot notification, it requires more electrical wiring than before.
And that’s just your ordinary everyday car.
The average Toyota Corolla would have about two kilos of copper wiring in it. An electrical vehicle like Tesla, has about six kilos of copper throughout the battery and wiring.
Then there’s all those electrical charging stations that will each need about 20 kilos of the stuff per pump.
But as the panel highlighted yesterday…we already understand the demand driving copper.
What people still need to wrestle with is the supply.
A shovel ready plot right now — something that has confirmed resource — is still three years away from mining copper. And that’s if everything goes to plan. Construction and financing delays could see that stretched out to five, or even 10 years.
Compounding all of this is aging copper mines.
Escondida, the world’s oldest copper mine, is responsible for about 5% of the world’s copper. The site is old, and often taken offline because of natural disasters, outdated infrastructure, and worker protests.
In fact, copper traders regularly allow for a 5% copper supply shortage at any time.
While retail investors may not be chasing copper right now, institutional money is moving into it.
Diamonds aren’t forever
To round this out, a panellist said ‘diamonds are over’.
The argument put forward by the panellist is that the price for diamonds has peaked for now…and that gold projects were going to find it easier to get funding.
The point for retail investors here is that the underlying price of gold is only just beginning to rise.
Meaning it’s more likely that institutional money or private equity will start funding gold projects around the world, based on where gold is in the commodity price cycle.
Oh, and the final nugget dropped — but the speaker didn’t elaborate on it — is that there is investor demand for coking coal projects.
Just don’t tell the protesters outside that.
Until next time,