More than one expert is hinting that copper might be the new trendy commodity among ASX investors, like what lithium has been the last few years.
Just this week The Motley Fool reported Argonaut associate dealer Harrison Massey spruik a copper miner as a buy, and Shaw and Partners senior investment advisor Adam Dawes do the same.
Now Maqro Capital head of trading Mark Gardner has piled on, explaining why there will be a massive price swell for the commodity.
Why copper is about to see a huge shortage
Gardner pointed out that coal, nickel and lithium all experienced a "price squeeze" over the past 12 months.
"The EV transition drove the squeeze in lithium, rare earths and nickel — all of which are key components of battery making," he said.
"While the battery materials shortage will largely be solved by oncoming global production over the next few years, copper is the forgotten commodity that is required to conduct all this energy, both fossil and green."
Four red flags are indicating to Gardner that demand will far outstrip supply of copper for the coming period:
- Over-reliance on one region for supply,
- Lack of new mines due to environmental pressure
- Record-low inventory levels
- Supply issues due to geopolitics
"Arguments one and four are dangerously related. The two biggest global producers of copper are Chile and Peru. Together, the South American powerhouses make up 43% of the world supply," said Gardner.
"They also happen to be in political disarray."
Peru recently saw a failed coup that triggered mass demonstrations.
"The protests already threatened 30% of Peru's copper supply with some Chinese miners having already closed down some mines," Gardner said.
"This is the equivalent to 75% of Australian production shutting down tomorrow. If political unrest continues, 13% of the world supply may come under threat."
Chile is going through its own issues, with high inflation and unemployment.
"This has seen the crime rate jump by a staggering 50% and protests from the left gaining momentum, which will spell disaster for the foreign-owned copper mines."
The lack of new mines has led to a depletion of most of the copper that was warehoused or recycled.
A perfect storm is, therefore, brewing.
"Copper has all the hallmarks of being the next big price squeeze in the commodity sector."
How to get exposure to copper on the ASX
Asked to name the three best ASX shares for investors to gain copper exposure, Gardner admitted the opportunities were scarce.
"This new ETF from GlobalX ETFs has some of the best copper producers from around the globe,"
"Canada, Australia, Mexico and China make up over 60% of the ETF, which largely avoids the perils of the South American unrest with only a 5.8% exposure to Chile."
"Sandfire Resources Ltd (ASX: SFR) is one of the last large cap copper plays left on the ASX," said Gardner.
"Given the strong copper price dynamics, we see strong potential for the company to exceed revenue expectations."
The third pick is a smaller player but, according to Gardner, may offer the greatest upside.
"Aeris Resources Ltd (ASX: AIS) has five tenements with four in production in 2023. The combined mine life of the five projects is 18 years with 57 to 71kt of production expected from the group next year and 780kt in reserves."