SPEAKER : EDMUNG SHING
Hello and welcome to a new podcast from BNP Paribas Wealth Management. I am Edmund Shing, Chief Investment Officer. Today the subject of our podcast is copper.
Copper, which is of course an essential metal for conducting electricity, for plumbing, amongst other things, and so can be found in building, but pretty much anything electrical and electronic. Of course, these days, that becomes very important since we have the focus on technology, in general, in an increasing technological world, but of course, in particular on everything around artificial intelligence.
The basic set-up for copper is that we see growing electrical demand and the electrification trend, which is very much in progress. And this is driving growing investment in electricity production and transmission, which implies greater demand for copper.
Secondly, if you think about copper demand, we can see that the growth in penetration of electric and hybrid cars in purchasing today is very important for copper, as these hybrid and electric cars use 2.4 times more copper on average than a conventional thermal engine car.
Of course, on top of that, we can add AI in data centre demand, which is clearly very much in progress, particularly in China and in the US. This is, of course, leading to much greater demand for electricity. And you can see this reflected in higher US electricity prices, particularly in those states with the greatest number of new data centre installations. We know that that electricity generation transmission infrastructure needs to be upgraded to cater for this growing demand.
But it's not just about that. The growth in electricity demand is not just from AI and from data centres, but actually more generally from emerging markets. We should remember that we have about 1 billion consumers in the Western world, the so-called “developed world”, but we have another 7 billion people in the emerging or developing world, including 1.4 billion people in India alone. What we see, if you just take one example around India, the average Indian consumes one third of the electricity footprint of the average Chinese inhabitant. So you can see there's still a lot of scope for India to consume more energy and more electricity in particular. And I think, as they see a growing middle class, we will see electricity consumption grow substantially and India will be a key driver of increasing global electricity demand, and therefore for copper demand, as a result. Imagine if they all get air conditioning in India, the increase in electricity demand will be colossal, requiring a lot more generation and transmission capacity.
We can also think about renewable energies and, of course, the need to drive the energy transition towards low carbon fuels. And again, copper has a key place to play in that, as of course, a lot of copper is required in everything that is wind and solar power, not to mention batteries, the industrial battery storage that is required these days to go alongside renewable forms of energy.
On the supply side, we are seeing limited supply growth, particularly from major mines in Chile and Indonesia, where we have actually seen recently supply disruption. It's not a case of growing the supply of copper from mines. Even keeping the supply stable is difficult enough. We see very few new mines coming into production, and even those few new mines that are coming into production are seeing falling ore grades. That is, you need to mine more ore to get the same amount of copper, which increases the cost of extracting that copper from new mines.
So with the increasing cost, this will put more pressure on the upside on prices, because you will not see new investment in copper mines until the copper price reaches a minimum level. Our LME copper price target in the next 12 months is $13,000 a tonne. This compares to the current LME copper price of $11,000 a tonne, so we are seeing nearly 20% upside because of this demand supply imbalance for copper. We see nearly 20% upside to the copper price today. Of course, for copper miners, that is great news because they have operating leverage that is for a certain amount of copper production. Clearly, even though costs may go up, if you see a near 20% rise in the underlying copper price, your revenues will go up faster and therefore your profit margins will expand.
Remember as well for copper miners that they often don't just mine copper, but as by-products, even if the primary product is copper, you quite often get other metals, and particularly precious metals, such as gold and silver, whose prices have rocketed in the last 12 months. So again, it's not just a question of the copper price driving profitability, but also of the increase in precious metals prices that adds an extra element for many copper mines as well in terms of profitability.
Finally, how can you invest in this copper theme today? Well, there are three options here. Firstly, you can go for a diversified commodities fund or ETF with a high weighting in copper and something perhaps which is equally weighted would be a good choice to reduce the weighting of oil and increase the weighting of metals such as copper and related metals such as aluminium.
Secondly, you can buy specifically an ETC which is like an ETF which is invested in physical copper store, i.e. copper sitting in warehouses. And thirdly, you can buy the producers, the copper miners, either the stocks individually or an ETF or a fund regrouping the stocks that exist too.
So all in all, a bullish outlook for copper and for copper miners. We think this is a key trend for 2026. Thank you very much for listening to this podcast from BNP Paribas Wealth Management. Please do like, share and subscribe to our series of podcasts. For more information on our investment strategy and our investment themes, please search on the web for BNP Paribas Wealth Insights.
Thank you, and until next week, goodbye.