The shift to renewables is here and is only getting stronger, and investors don’t seem to be getting enough of it. But the industry faces a big problem: it is highly dependent on copper and there is a shortage.
So, note analysts at Jefferies, who present a scenario of high copper demand, alongside miners poised to take advantage of it, in a recent note to clients. “Based on our analysis, the copper market is heading into a period of multi-year deficits, in part due to the secular demand for renewables and EVs. [electric vehicles]»Says a team led by Christopher LaFemina.
Analysts predict that higher prices are coming and “will lead to substitution for other materials” needed to balance the market.
This growing demand has had two main sources. The first, the switch from coal and gas power to wind and solar power, works in favor of copper because these systems require five times more copper than conventional systems. For example, offshore wind consumes around 15 tonnes per megawatt of installed capacity, while onshore wind and solar take around 5 tonnes and conventional energy one.
Analysts expect the demand for copper in renewables to grow from 991 kilotonnes in 2020 to 1.9 megatonnes in 2030.
The other source of copper consumption is the electric vehicle, which weighs around 83 kilograms on average, while charging stations require 10 kilograms of copper. LaFemina predicts that the demand for copper will increase to 1.7 megatonnes in 2030 from 170 kilotons in 2020.
In their bear case for copper itself, analysts see the market “adequately supplied until 2025 before deficits show up”, but even so, the path of least resistance is higher for the metal. “If our assumptions are correct, the higher pressure in copper is a matter of ‘when’ rather than ‘if’, they say.
“The price at which the elasticity of demand is high enough to balance the market depends on the size of the implied deficits, but in our base and bullish scenarios, it is not unreasonable to assume that the price of copper would rise to at least $ 5.00 a pound for an extended period before demand adjusts enough to balance the market. This point is very underestimated, in our opinion, ”say analysts.
When it comes to stocks to meet this demand for copper, Jefferies upgraded Antofagasta and Glencore from hold to buy and reiterated Freeport and First Quantum as top picks. Other miners with bullish ratings are BHP Group (London and Australia listings as well), Rio Tinto (London and Australia listings as well) and Vale.
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