Balanced Portfolio Recommendation: Buy 4% Global Copper Producers ETF (WIRE)
Date: 20/5/2024
*** GENERAL AVICE ONLY***
Global copper demand is projected to hit 26 million tonnes in 2024. According to a Reuters survey, the copper market deficit is forecasted to exceed 100,000 tonnes in 2025, compared to 35,000 tonnes this year, but in my opinion, this is conservative with the rise of AI adding a new player to compete with the energy transition.
WIRE provides access to a global basket of copper miners which stand to benefit from being a key part of the value chain facilitating growth in major areas of innovation such as technology, data centers, infrastructure and clean energy.
As we already own BHP, this global producer exposure will be complimentary to our existing producers
*** Trade Plan ***
This has led to global copper inventories are close to 30-year lows in terms of days of demand and without new significant supply coming on within at least 2 years, it makes prices far more sensitive to supply gaps
Total Portfolio Allocation: Buy 4% of portfolio with a view to add a further 2% at a later date
Entry: <$15.50 | Target: $22 | Stop Loss: $12.50 | ADD 2%: <14.50 (Inclusive of 25.74c Dividend in Feb 2024)
*** Rationale ***
AI Data Centre Demand
Nvidia’s H100 AI GPUs have increased energy consumption by over 13,000 GWh in the past year, with a projected 40% growth in the next two years, equating to an additional 46,000 GWh. Chief Economist at Trafigura, Saad Rahim, noted a sudden surge in copper demand from AI, potentially adding one million tonnes to the existing deficit, expected to reach four to five million tonnes by 2030.
AI giants like Amazon, Nvidia, Microsoft, Alphabet, Meta, Apple, and Tesla have significant market influence and financial resources, with a combined market cap that would make them the world’s second-largest stock exchange. These companies’ cash flow increased by $100 billion in 2023, driving the need for copper to support their AI and cloud expansion. Notably, Bill Gates and Jeff Bezos have invested in KoBold Metals, which uses AI to discover copper deposits, though new mines take about 15 years to develop.
Energy Transition Demand
The Paris Accord targets have increased copper demand from green sectors, with renewables and EVs’ share of global demand set to double from 8% to 16% over the next decade. Despite progress, copper demand has outpaced supply due to the simultaneous pressure from AI and the energy transition.
Supply
Copper prices, while high, remain below 2011 peaks, discouraging new exploration. Global copper inventories are at 30-year lows. Recent supply disruptions include:
- Codelco’s production fell 10.1% in March.
- Strikes at MMG’s Las Bambas mine.
- Glencore’s production declined 2% last quarter.
- Antofagasta’s Q1 2024 production was 11% lower year-over-year.
- Anglo American reduced its 2024 output target by 210,000 to 270,000 tonnes.
- KGHM Group reported lower-than-expected production.
- The closure of First Quantum’s Cobre Panama mine removed 330,000 tonnes from the market.
These supply issues increase the risk of higher copper prices due to the tightened market.
Disclaimer: The recommendation given is general advice only. It does not take into account your personal objectives, financial situation, or specific needs. This information should not be your sole resource when making such decisions. We strongly recommend you to seek the advice of financial, taxation, and legal professionals before finalising any investment decisions.