Energy transition, infrastructure projects providing tailwinds for copper, says strategist
Since the beginning of US President Donald Trump’s tariff policy shake-ups in February, investors have looked to diversify their portfolios from US stock markets, which have seen high volatility and uncertainty. For Raghav Mehta, copper has been a prime example of a commodity that can protect from the volatility shown in stock markets while maintaining steady long-term prospects.
Like gold, copper has largely flourished since the start of the year as investors have fled for safety amid the high volatility and uncertainty caused by Trump’s tariff policies. And while gold has traditionally been a popular hedge against market downturns, copper’s defensive value has often been overlooked by investors according to Mehta, an ETF strategist at Global X.
“Many investors tend to forget or lose sight of the fact that copper actually has an extremely critical integral role to play in the long term,” Mehta said. “Even though copper is still viewed primarily as an industrial commodity tied to economic growth cycles many people don't know that it has actually proven to be an excellent portfolio diversifier.”
While investors can buy into copper through the purchase of the commodity itself, Mehta says buying into copper miners’ stocks, like Global X’s Copper Producers Index ETF, is a more efficient way to hold the asset. He says that by investing in the mining companies, investors can dodge the variable costs of copper and see tailwinds from increased profits from mining companies.
“Mining outfits incur substantial upfront and ongoing fixed costs, whereas the price of the commodity is a variable cost that can go up and down,” he said. “So that can amplify or enhance your profit leverage to the upside, which means greater earnings performance for these companies and leveraged performance for the mining companies.”
Copper has been commonly viewed as an indicator of global economic health – hence the commodity’s “Dr. Copper” nickname – due to its intractable relationship with construction, transportation and consumer goods. And as nations push grand infrastructure projects with high copper demand such as the JOBS act in the US, China’s Belt and Road initiative and the Green Deal in the EU, Mehta says copper mining forecasts are only going to increase in value.
“If you look at the rapid growth in electric vehicles, renewables, data centers and artificial intelligence infrastructure that goes into the data centres, that's all projected to push copper demand 40% higher by year 2040,” he said. “Yet on the supply side, we have declining copper ore grades and rising costs of mining and other things like environmental and social hurdles that mining companies normally end up facing nowadays, so that's tightening the supply.”
Global X’s copper ETF has a weighting of 56 per cent Canadian copper mines, something Mehta suggests will continue to produce results as demand for the commodity grows. He references the Canadian government’s pledges to increase critical mineral spending and exploration in the country, particularly as the government attempts to shield the country from the economic damages of Trump’s erratic trade policies. Abandoned copper mines in both B.C. and Quebec have also been revamped to meet the energy transition’s high copper needs, an indication of potential mining opportunities across the country, according to Mehta.
A hurdle often faced within copper mining is found in the large mines held in unstable nations in the developing world. Mehta points to the large holdings of the ETF in Canada, Chile and other mining powerhouses which not only provide the critical minerals needed, but also stable governmental policies.
A weaker Canadian dollar has also provided some tailwinds to the industry, according to Mehta. The dollar is currently down 2.18 per cent year over year, which has given copper miners higher profit margins and a wider export reach, as mining costs are incurred in CAD before the commodity is sold off in USD. The low Canadian dollar also allows for larger foreign investment opportunity.
The price of copper is heavily reliant on Chinese investment according to Mehta, who says that investment into both infrastructure and the energy transition are set to give the commodity long term tailwinds. While the Chinese economy has faced a number of tumults over the past few years, Mehta says that growth in sectors like Chinese-built electric vehicles – which accounted for half of the EV sales across the globe last year – are only continuing to push copper stocks ahead. He also adds that while there is domestic copper mining in China, this output comes nowhere near satisfying the massive demand created by electrifying energy grids and battery manufacturing.
