Copper is the new oil and why green transformation equals inflation
The “new oil” that will fuel the green transformation and electrification of our economy is copper, which is much more intensely used than in our old industrial economy. Commodity analysts are split on the demand-supply balance, but from an equity perspective it matters more long-term what the demand outlook is. Here it looks great due to the politically decided green transformation and our view is that investors should get exposure to copper over the coming decades as the value of this commodity will go up because of its importance during the electrification. The table below show some of the available copper miners in public markets.
Publicly listed copper miners
|Southern Copper Corp||53,586||12.1||-7.7|
|First Quantum Minerals Ltd||16,850||10.5||16.4|
|Jiangxi Copper Co Ltd||11,470||NA||11.8|
|KGHM Polska Miedz SA||11,424||8.7||0.5|
|Lundin Mining Corp||7,869||7.5||26.3|
|OZ Minerals Ltd||6,708||16.3||-10.2|
Source: Bloomberg and Saxo Group
The CEO of BlackRock Larry Fink said yesterday that we could be facing an ‘inflation shock’ if we decide to move too aggressively on the green transformation. Our indecision for years on climate change has forced policy makers to adopt an aggressive path toward net-zero carbon which risks that the economy will hit a physical constraint creating inflation. The green transformation has the potential to create more permanent inflationary pressures and it will be discounted by the market and economists because the dynamics cannot be modelled on historical data as this is a paradigm shift decided politically. A copper miner such as Southern Copper said on their Q1 earnings call that existing mines can be expanded but their next new two mines will not begin operation until 2024 and 2027. This provides insight into how cumbersome it is to expand supply in the physical world unlike the “infinite” expansion of supply we have gotten used to in the digital economy.
The green transformation is also driving the new EU carbon border tax, which is a natural extension of the green agenda. The EU cannot be green without losing manufacturing jobs if imported goods from polluting countries are not taxed on its carbon footprint. Effectively the political ideas of the green transformation and nationalism will converge over the coming years. These forces will underpin higher production costs and prices in general.