Copper is the Next Big Commodity Investment Opportunity on the ASX: Here’s Why!

Ujjwal Maheshwari, October 18, 2024

Any element other than gold isn’t hot with investors right now, but we think Copper is the Next Big Commodity Investment Opportunity on the ASX, and current prices could present the perfect timing.

Copper is known as one of the strongest conductors in the periodic table and proves its worth by being a prominent element used in electrical equipment. Critical apparatus like wiring and motors (electrical), roofing and plumbing setup (construction), and heavy machinery (industrial) all comprise this essential metal.

The revolutionary shift towards green energy industries, especially with the emergence of electric vehicles (EVs), has led demand for many elements like lithium rise, but many seem to forget that copper is important too. With this unparalleled growth, investors should take a look at copper-based stocks on the ASX.

Demand for Copper

Copper/Cuprum (in Latin), is a resourceful element for a lot of good reasons. The metal plays a crucial role in enhancing many modern technologies and it proves to be essential for global economic growth.

Here are some viable uses for copper which underpin demand:

Electric Vehicles

The world is looking up to a potential shift to the electric vehicle market. It is also true that people still heavily rely on fossil fuels, but this green revolution is expected to change that dependence, thereby forming a sustainable environment. Copper is a critical component in the making of EVs. An EV uses nearly four times the quantity of copper compared to a traditional fuel-powered car. According to the International Energy Agency (IEA), the number of electric vehicles on the road is expected to reach 145 million by 2030. This will drive the enormous demand for copper in the coming years.

Renewable Energy Infrastructure

This versatile element is also a significant contributor to building renewable energy systems like wind turbines, solar panels, and power grids. It has excellent conductivity, durability, and recyclability making it ideal for the process of wiring in these systems.

Rapid Urbanisation

Certain countries like China and India are undergoing an infrastructural development phase which will only drive up the need for copper. These nations are increasingly focused on integrating their existing structures. This includes electrical wiring, plumbing, roofing processes, and more. All these factors make copper an indispensable metal for modern infrastructure.

The ‘Copper Crunch’

The imbalance of any commodity will occur if the supply exceeds the demand or vice versa. Since the need for copper is growing, the supply aspect faces challenges – in fact there is a term for this trend: ‘The Copper Crunch’.

Many of the renowned mines in the world are ageing – for example, Chile’s Escondida mine. New projects are sedated, creating an imbalance. This is expected to push copper prices higher, thus making it a promising commodity.

Telecommunications Infrastructure

There is a notable rise in data centers, 5G-related projects, and cloud computing. Copper is an important element that is used in communication networks. In the name of improving such infrastructure, it is the underlying metal used to develop telecommunication cables to enhance data transmission.

The Top 2 ASX-listed Copper Stocks to Watch

There are many copper-focused stocks listed on the ASX that stand to benefit from the ongoing demand for copper:

BHP (ASX: BHP)

BHP exhibits a strong copper portfolio. This company already operates some of the major copper mines in the world, including Escondida in Chile and Olympic Dam and Oak Dam in South Australia. And evidently, BHP is hungry for more. It is bringing new projects in Argentina online, and seeking to expand its portfolio through M&A, buying Oz Minerals and going so far to buy AngloAmerican – only giving up when that company turned down a $70bn+ takeover offer.

Sandfire Resources (ASX: SFR)

This is another leading copper mining company listed on the ASX. After a decade or so of being a one trick pony with the DeGrussa deposit in WA, Sandfire is reinventing itself. Its flagship asset is the Marsa project in southwestern Spain. But it just opened a second mine, the Motheo Mine in Botswana back in August. The company anticipates ramping up production fast to a 3.2Mtpa copper processing rate.

If you have any doubts about whether or not mining is welcome in Botswana, consider the fact that the country’s president came out to Australia to speak at the recent Africa Down Under conference earlier this year. Investors have been cool on this company given fluctuating copper prices and high capex (paid for by debt) as it purchased these two projects and bought them ‘up to scratch’. After reporting a US$109m profit in FY22, it made a US$53.6m loss in FY23. It is also adjusting to life after long-term boss Karl Simich departed.

Why Copper Could Be the Next Big Commodity?

Copper is present in just about everything – from the smallest pieces of domestic wiring to huge machinery operating in industries. There are numerous reasons why copper can transform itself into the next biggest commodity, thereby fuelling the copper-based shares in the market. Individual countries and the supply chain globally all stand to gain from the demand for copper.

With primary factors like the production of electric vehicles and the shift to the renewable energy sector, copper plays a crucial role in energy storage solutions. Beyond this, various infrastructural projects are underway through which companies are likely to expand their markets. So, it is essential to note that this metal is extremely multi-faceted, thereby fulfilling the demand in every aspect.

How to Invest in ASX-listed Copper Stocks

Know these simple steps about investing on the ASX:

Create an investment plan considering the brokerage account (broker fees) and individual stock price comparison.
Investors can make informed investment decisions after seriously considering the trends in the copper market and choosing their preferred copper-based shares.
Analyze the market capitalization of the companies listed on the ASX.
Make sure to watch out for the dividends payout of the company to estimate investor’s revenue from the copper-based shares.

Future Outlook of ASX Copper stocks

There is a promising future waiting for copper as it is driven by different technological and infrastructural advancements. There is a constant global push towards a more sustainable future. According to the International Copper Study Group (ICSG), the global copper demand is expected to rise by a margin of 2.5% annually. This will cause a significant height of 28.5 million tonnes by 2030.

The supply of copper, however, may struggle to keep up with this increase. As major mines like Escondida approach the end of their life cycles, and no large-scale replacements come online quickly enough, the risk of a potential deficit increases. Unless companies find a viable way to stay relevant and meet the demand for copper, a potential shortage in the market is possible.

Conclusion

With the global supply of copper expected to squeeze into lower rates, the copper prices as a result, may continue to rise, thus positioning the next big commodity on the ASX. The sector shows a promising investment despite of whether it is through direct individual investment in copper shares or ETFs. This is an ideal opportunity for investors looking to learn more about the copper industry and capitalise on the global transition to a greener future.