Why copper will overcome setbacks and outperform

Since November 6, economic pundits have been guessing who will be hit hardest by Donald Trump’s second stint as US president. Could it be China or Mexico – perhaps even Canada. Trump’s erratic nature means nobody knows what will happen until he takes power, but one early set of victims are copper investors. The red metal has fallen 6.6% since the day of the election.

Why the dramatic drop? Well partly because copper is priced in US dollars and with the greenback surging since Trump’s win, the relative value of copper has dropped. Another reason any trade war, and the resultant hit to global economic growth, would dampen demand for copper – a metal with such widespread industrial use that its demand closely tracks GDP growth.

Strong supply

Meanwhile on the supply side, copper had a relatively good year. According to Fastmarkets analysis, rising mine production in 2024 – especially from the Democratic Republic of Congo, which is set to overtake Peru as the world’s second-largest copper producer – will lead to a small surplus of copper this year. The sense of ample supply is even evident on the main metal exchanges – the LME, SHFE and CME – where copper inventories have almost doubled in 2024.

All these short-term factors have pushed the copper price down 18% from its record high of $11,104.50 per tonne in May. But long-term fact that made investors bullish earlier in the year haven’t gone away. The world will still need lots of copper to electrify the global economy.

Analysts estimate that the percentage of total annual copper consumption going into energy transition applications will reach 20% in 2034, up from 10% today. That will drive up overall copper demand by 2.6% per year over the next decade, while supply grows at an annual rate of 2.1%. By 2034 today’s marginal surplus of a few thousand tonnes will turn into a deficit of almost 2 million tonnes. If you can ride out the bumps, copper is a good investment for the long-term.

A simple way to invest in copper, without taking on individual company risk, is through an ETF. One option is the WisdomTree Copper ETF (LSE:COPA). Or you can invest in a basket of miners through the Global X Copper Miners ETF. (LSE:COPG).