All the pieces are almost in place for the next commodity upcycle. Deficits have developed in several commodities after years of underinvestment and low prices, and we have entered a new capex cycle. The capex cycle is being driven by demand for power and energy storage, decarbonization, defense spending, reshoring, infrastructure investments, transportation and the growing developing economy. The one commodity that benefits from all these drivers is copper, a superconductor. Data center electricity demand is expected to increase copper demand from 241 kt to 463 kt by 2030 (0.9% of global demand going to 1.4%), per Jefferies’ estimate. China, ~50% of total global copper consumption, would need to install an estimated 100m tons of copper to achieve GDP per capita in line with other wealthy nations, according to Goehring & Rozencwajg. India and Indonesia’s consumption of copper has taken off in recent years as they continue to develop their economies. Sources of renewable energy require five times more copper than non-renewable sources, per Australia’s National Science Agency. Corporations continue to order renewable energy projects to offset their carbon footprints through Power Purchase Agreements with utilities. Copper sits in the middle of the transition to a more electrified economy. The table below from Jefferies shows the current supply and demand outlook for copper. 2023 was the first year of what seems to be a widening deficit through the end of the decade as supply will struggle to keep pace with demand.

Exhibit 1: Copper Supply and Demand

Source: Jefferies

The price of copper today is sitting just above $4.50/lb. The incentive price for new production is estimated to be as high as $5.50/lb., according to Jefferies Research. Until prices sustain above that level there will not be a sufficient increase in supply. Output from Chile and Peru (35% of global mine supply, according to DB), was -4% y/y in April. As the table above and the graph below demonstrate, mine supply growth is expected to remain subdued in 2024. See Exhibit 2.

Exhibit 2: Copper Mine Supply growth

Source: Deutsche Bank

The limited supply growth is a product of weaker copper prices and limited mine approvals due to permitting constraints. In November 2023, Panama shut down a mine that contributed 1.5% of global copper supply after it deemed a company’s mining contract unconstitutional. The mine is expected to restart at some point in 2025, but the market will tighten until then and beyond. We’ve also seen other producers lower production guidance due to drought and tough mining conditions (lower grades and hardness of the rock). The graphs below show decreasing mine approvals and increasing incentive price estimates.

Exhibit 3: Copper mine project approvals have declined since 2021 and will not improve in 2024

Source: Deutsche Bank

Exhibit 4: Incentive copper prices for greenfield projects have risen to $9,400-10,600/t

Source: Deutsche Bank

Under this supply-constrained environment we have focused on identifying producers with accelerating production growth under the assumption that they will be able to recognize increasing selling prices as the price of copper rises in the coming years. The last key ingredient that will send commodity prices soaring is a weakening US dollar. Although we expect there to be some volatility until the USD weakens in a sustained fashion. Given the United States current fiscal situation (the Congressional Budget Office increased its budget deficit forecast for FY24 from $1.6 trillion to $2 trillion) and upcoming Federal Reserve rate cuts, we feel it is matter of when, not if, the USD rolls over.