Jul 3

Electric Cars Among Drivers in Commodities Supercycle Talk

Dimitri Frolowsckii
Feb 19, 2021

Electric vehicle ambitions are adding fuel to copper markets in what might be the start of a commodities supercycle.

Copper prices have reached their highest level since 2012. Assuming a 5 percent demand growth scenario, guidance from the top 25 copper producers indicates that the market may suffer from a deficit this year, according to Bloomberg.

Mining giants like Glencore and BHP are in the amidst of a dividend party, according to some analysts. Glencore announced it will reinstate its dividend, while BHP hiked its interim payout by 55 percent.

First Quantum Minerals reported it has increased production to record levels while share prices are at, or near, 5-year highs. Meanwhile, Kaz Minerals shareholders are unlikely to be motivated by a proposed buyout offer, as copper prices have outpaced it. That offer itself “could weigh” on share prices, according to Renaissance Capital.

And the future appears worth a look.  

The last time hedge funds were so bullish on commodities was in the mid-2000s, when China was on a buying spree. At that time, Beijing was in its active economic growth stage and stockpiled everything from oil and gas to rare earth metals.

The drivers may be different this time around, although China will likely play a part. Electric vehicles will likely contribute to demand as well.

Copper is a major component of motors, batteries, inverters, wiring and recharging. Some electric vehicles can contain over a mile of copper wiring in internal windings.

The European Union has led the global drive to combat global warming by pledging to become carbon neutral by 2050. This will involve transitioning the bloc to a utilities-based energy model in which consumers will use clean renewable energy.

In practice, that means that auto fleets, both in the EU and globally, will likely start switching from  petroleum engines to electric ones. Automaker Tesla has pioneered the switch, showing that battery-powered vehicles can deliver quality and performance. Major global automakers have followed suit with new product offerings.

During the past three months, major banks and hedge funds have bet on a commodities bull market as government stimulus kicks in and the pandemic recedes.

Major players such as Goldman Sachs Group Inc. and Bank of America Corp. are currently betting on a robust economic recovery and hedging against inflation.

JPMorgan projects that we are at the beginning of another “roaring 20s” supported by easy fiscal policy, a weak U.S. dollar, stronger inflation and affordable commodity prices – specifically energy, as OPEC has plenty of spare capacity for oil production, as does the U.S. with shale beds.

Some major banks forecast that the U.S. will reach herd immunity by July, which could further stimulate demand for commodities. 

As recovery picks up and the rollout of the COVID vaccine continues, markets may become even more bullish, which would be an extraordinary change compared to the past year.

Copper’s performance appears to have more to do with what market watchers see as cyclical upturns for the moment. At the same time, future green ambitions – where electric cars play an important part – are definitely allowing investors to feel a lot more bold. 

Dimitri Frolowsckii

Dimitri Frolowsckii is a political and energy analyst with over 15 years of experience in journalism.

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