Copper prices took a hit last year due in part to a manufacturing slowdown in China, but also because of a sales decline of electric vehicles (EVs), which heavily consume copper. Benchmark prices for the red metal fell by as much as 40% from their 2022 highs before rallying later that year, then spent much of 2023 basically treading water.
But copper prices (and copper stocks) have been sizzling of late, rallying 15% in just the last few weeks and coming within reach of 12-month highs. Analysts have attributed the sudden sentiment shift toward the metal to tightening global supplies (due mainly to last year’s closure of a giant mine in Panama) along with a strengthening U.S. economy.
But another key factor—and one less talked about—is Washington’s recent mandate concerning automotive emissions. According to the Associated Press, the White House is expected to announce new emissions standards this month that will “relax proposed tailpipe limits for three years but eventually reach the same strict standards set out by the Environmental Protection Agency.”
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On the surface, this ruling may sound like bad news for the EV industry, which has been struggling with a sales slowdown over the past year. But the White House isn’t actually relaxing the mandate to essentially require two-thirds of all new vehicles to be electric by 2030. Instead, the Biden Administration is simply extending the amount of time automakers will have to comply with the new standards, pushing it forward to 2032. As stated by the Associated Press:
“[The] EPA will pick an alternative that slows implementation from 2027 through 2029, but ramps up to reach the level the EPA preferred from 2030 to 2032.”
Detractors of the mandate believe the government’s attempt at pushing American drivers into EVs will undermine the auto industry, pointing out that Ford and GM have already lost billions trying to sell EVs that many consumers don’t want. Proponents, by contrast, applaud the move as a way to limit carbon emissions while potentially opening up new high-tech industries in support of electric vehicles production.
Putting aside the political considerations of the EV debate, there’s no denying that Washington’s continued support of the EV agenda will have profound economic consequences in the coming years. And a big part of that impact will revolve around battery metals like copper, which in turn will pave the way for some potentially very profitable opportunities for astute investors.
It should be noted that EVs consume as much as 176 pounds of copper—four times the amount used in traditional vehicles. In fact, EVs accounted for two-thirds of the global demand growth in copper last year, according to a recent Goldman Sachs report.
And as automotive industry analyst Eric Peters has noted, “Car manufacturers have to plan ahead as it takes years to design, prototype, test and tool up production for a new vehicle.” Hence, while the extension of the federal auto emissions mandate may have bought carmakers some additional time, the accelerating demand for copper the mandate necessitates has already begun to take effect.
With that in mind, let’s take a look at some metal producers that stand to benefit from a world in which copper consumption will dramatically increase in the coming eight years.
2 Copper Stocks for the Comeback
Copper Stock #1: Southern Copper
Phoenix-based Southern Copper (SCCO) is one of the world’s largest integrated copper producers and owner of one of the highest proven reserves for the metal, with the industry’s lowest cash costs and most extended mine life (it also produces silver, molybdenum and zinc as byproducts through operations in Mexico and Peru). This year, the company expects copper production to increase modestly, while silver production is seen jumping 12% and zinc output is expected to soar 80%. And with prices for all three metals on the rise, continued price strength should result in significantly higher profits for Southern in 2024.
Indeed, an expected shortfall in global copper production, coupled with higher demand for the metal from the booming renewable energy sector, recently prompted a major Wall Street bank to predict copper prices will reach $6.80 a pound by 2025—up a whopping 65% from current prices if realized. Analysts, meanwhile, see positive but subdued growth this year followed by an acceleration in 2025, but those guesses could be trampled if the recent copper price surge (up 12% from its February lows) continues.
Copper Stock #2: Freeport-McMoRan
As mentioned above, the acceleration of the energy transition in the U.S. and other countries is putting heavy demand on copper, which is used in EVs, solar panels and other renewable energy infrastructure applications. This is where Freeport-McMoRan (FCX) enters the picture. Aside from being a top 10 gold producer, the company is the world’s largest copper producer by output (1.5 million metric tons produced in 2022), with operations in several continents, and its earnings are highly leveraged to the red metal’s price, making it something of a copper pure play.
The company’s management noted in a recent earnings call, “The world’s just becoming increasingly electrified and that’s what copper is used for,” adding that several nations are going to need “significantly more” copper in the future for a variety of uses for which the firm is well positioned to benefit from, thanks to its large sustainable reserves and resources.
What’s more, a major investment bank just ranked Freeport as one of its top picks for global “long-only” portfolio of stocks expected to benefit from long-term trends associated with the energy transition (among other factors).
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