Energy Transition and Economic Stabilization Poises Copper as Inflation Hedge to Opportunities

• Copper is a key indicator of global economic health and remains essential for various industries, including construction, electronics, and renewable energy.
• Recent market developments show signs of stabilisation in China's property market and increased production by major miners. The market stabilization and government stimulus suggest potential growth in copper demand.
• Despite a 4% price rise in January 2025, investor sentiment remains cautious due to potential U.S. tariffs.
• Factors influencing copper prices include global economic conditions, supply constraints, technological advancements, geopolitical tensions, and currency fluctuations.

Copper, often referred to as "Doctor Copper" due to its ability to diagnose the health of the global economy, remains a cornerstone in various industries, from construction to electronics. As of early 2025, the copper market presents a complex landscape influenced by factors such as global economic conditions, technological advancements, and geopolitical developments. This article provides an in-depth analysis of the current state of the copper market, factors affecting its price, and considerations for investors.

Recent Developments in the Copper Market

Rio Tinto observed signs of stabilisation in China's property market, a significant consumer of copper. This stabilisation, supported by government stimulus programs, suggests potential growth in copper demand. Additionally, Rio Tinto reported a 26% increase in copper production, indicating a robust supply response to anticipated demand.^[1]

However, the broader context indicates that the commodities supercycle driven by China's rapid urbanization and industrialization has concluded. The Chinese economy now requires new growth drivers beyond the property sector. The global shift towards renewable energy and electrification is expected to drive future demand for copper, essential for technologies like electric vehicles and wind turbines.

• ‍Antofagasta reported a minimal 1% increase in copper production for 2024, totaling 664,000 metric tons, slightly below its guidance range. The company maintains its 2025 output forecast at 660,000 to 700,000 tons, anticipating modest improvements at its Centinela site. This cautious outlook reflects challenges such as lower ore grades and the need for significant capital expenditure to develop new projects.

• Pan Global Resources had a successful 2024, expanding their La Romana and Cañada Honda copper-tin-gold discoveries in southern Spain and identifying new high-potential targets. With an ambitious drilling program planned for 2025, the company aims to delineate a cluster of deposits to reach their long-term target of 100 million tonnes of copper resources.

• Kodiak Copper has commenced work on a National Instrument 43-101 compliant resource estimate for multiple mineralized zones at its 100% owned MPD copper-gold porphyry project in southern British Columbia. Kodiak plans to deliver results throughout 2025 while continuing exploration to unlock the property's upside, with seven zones currently being evaluated for the resource estimate.

• Hot Chili intersected significant copper-gold porphyry-style mineralization in the first two holes at the La Verde target, part of the recently consolidated Domeyko landholding near the company's flagship Costa Fuego project in Chile. Drill hole DKP002 returned 202m grading 0.6% copper and 0.3 g/t gold, confirming a 400m extension of the porphyry system which has a footprint comparable in size to Hot Chili's Cortadera discovery 30km to the north.

• Callinex Mines provided an encouraging update on its ongoing 2024 exploration drilling campaign at the Pine Bay VMS project in the Flin Flon district of Manitoba. The company reported completing an initial deep hole into the promising Poseidon target area and is currently drilling a major 400m step-out hole to expand the high-grade Descendent discovery, with initial assays anticipated in early 2025.

Marimaca Copper achieved a significant milestone in 2024 by growing their oxide copper resources at the Marimaca project in Chile, culminating in an updated resource estimate with 86% now in the higher confidence Measured and Indicated categories. The company is advancing Marimaca towards a Definitive Feasibility Study, establishing it as a sustainably developed, low carbon 'green copper' project with outstanding exploration potential both near-mine and regionally.

CEO, Hayden Locke muses, "In terms of what's driving the copper price in the short to medium term, and medium to long term, is more about electricity demand and what that does to the aging infrastructure which is delivering electricity around the world. All of those require enormous amounts of additional electricity, and our grids as they currently stand, are not capable of taking the amount of electricity demanded wherever it comes from. Whether it comes from coal, from nuclear, from whatever; the electricity demand that needs to be put across our networks our aging networks and through our aging substations, it's not possible without significant upgrades and that means more copper. Lot's more copper."

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ATEX Resources' Phase IV drill program in 2024 resulted in an updated interpretation of the Valeriano copper-gold porphyry deposit in Chile, outlining the potential for a larger, higher-grade, and more continuous system than previously modeled. With five drill rigs active, the company's 2025 program will focus on expanding the resource through step-out drilling and delivering an updated resource estimate in H2 2025.

Ben Pullinger, CEO, suggests investors look for scaleable projects, "Copper assets typically, once they get up and running, are generational assets and the scale is something different but there aren't a lot of scale projects. There's not a lot that are advancing and there's not a lot that have credible financing behind them, so we are entering a very rarified atmosphere of right shareholders, right place, right commodity, right time."

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Central Asia Metals delivered copper production at Kounrad in Kazakhstan within 2024 guidance. At their Sasa zinc-lead mine in North Macedonia, the company substantially completed a transition to more sustainable paste backfill and dry stack tailings operations. Looking ahead to 2025, CAML will focus on maintaining steady output from existing operations while evaluating growth opportunities.

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Element 29 Resources, exploring in Peru, saw a leadership transition in 2024 as the company's founder stepped into the CEO role. Two deep drill holes at their flagship Elida porphyry copper project intersected long intervals of alteration, with assays pending. 2025 will be catalyst-rich for Element 29 as they restart drilling at Elida, complete geophysical surveys, and advance their portfolio of copper projects.

Richard Osmond, CEO, says, "I haven't explored for copper for a long time and these things are really hard to find, especially in stable mining jurisdictions. If I'm going to be exploring for copper, I'm definitely going to be exploring Peru."

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Despite these developments, investor sentiment remains cautious. Copper prices have risen by 4% since the start of January 2025, making it the top performer among London Metal Exchange base metals.^[2] However, uncertainties surrounding potential U.S. tariffs under President-elect Donald Trump's administration have led to a balanced stance between bearish and bullish positions among fund managers. The possibility of tariffs introduces concerns about disruptions in global trade, particularly affecting metals-intensive industries.

Factors Influencing Copper Prices

1. Global Economic Conditions: Copper demand is closely tied to global economic health. Economic slowdowns or growth in major economies like China and the U.S. significantly impact copper consumption. For instance, China's economic policies and infrastructure investments have historically driven substantial copper demand.
2. Supply Constraints: Production challenges, such as declining ore grades and limited new mining projects, can restrict supply. Antofagasta's recent report of flat copper output highlights the industry's struggle to increase production amid such constraints.^[2]
3. Technological Advancements: The transition to renewable energy sources and the proliferation of electric vehicles (EVs) are expected to boost copper demand. Each EV requires approximately four times more copper than a conventional internal combustion engine vehicle, underscoring the metal's critical role in the green energy transition.
4. Geopolitical Tensions: Trade policies, such as the potential implementation of U.S. tariffs under the incoming administration, can create market volatility and affect copper prices. Investors should monitor geopolitical developments that may disrupt supply chains or alter demand patterns.
5. Currency Fluctuations: Since copper is traded globally in U.S. dollars, fluctuations in the dollar's value can influence prices. A stronger dollar makes copper more expensive for holders of other currencies, potentially dampening demand.

The Investment Thesis for Copper

• Growing Demand from Renewable Energy and EVs: The global shift towards renewable energy and electric vehicles is set to increase copper consumption. Investors can capitalize on this trend by considering exposure to copper-producing companies or related ETFs.
• Supply Constraints Leading to Potential Deficits: Analysts project that the copper market may face deficits by the mid-2020s due to limited new mining projects and increasing demand.^[4] This supply-demand imbalance could support higher prices, benefiting investors with copper exposure.
• Hedge Against Inflation: Commodities like copper often serve as a hedge against inflation. In an inflationary environment, tangible assets such as metals tend to retain value, providing a safeguard for investors.
• Diversification Benefits: Including copper in an investment portfolio can enhance diversification, reducing overall risk due to its low correlation with traditional asset classes like equities and bonds.
• Potential Upside from Infrastructure Investments: Government infrastructure projects, particularly in developing economies, can spur copper demand. Investors should watch for policy announcements indicating increased infrastructure spending.

Key Takeaway

Investing in copper offers exposure to a metal integral to global economic development and the ongoing energy transition. While recent market developments indicate both opportunities and challenges, factors such as growing demand from renewable energy and electric vehicles, potential supply constraints, and the metal's role as an inflation hedge present compelling reasons for investment. However, investors should remain vigilant regarding geopolitical developments and economic indicators that may influence copper prices.

_References:

1. _{Fowler, E. (January 2025). Financial Review. Rio Tinto says China Property Market Shows Signs of ‘Stabilising’}
2. _{Reuters (January 2025). Antofagasta Reports Flat 2024 Copper Output}
3. _{Home, A. (January 2025). Copper's Early-Year Rally Leaves Investors Unimpressed}
4. _{Keen, K. (April 2021). Analysts Increasingly Bullish on Copper; Goldman Projects $15,000/t in 2025}