Five reasons why the copper price is likely to stay sky-high

1. US stimulus money for infrastructure
2. Massive demand from China’s growth economy
3. Increased usage in electric vehicles
4. New supply is constrained
5. Fiat currencies weakening as money printing continues

US stimulus money

The numbers are somewhat opaque and are also so huge as to be fairly incomprehensible anyway, but the general view is that overall the Biden administration in the US will spend around US$10tn on stimulating the economy in the wake of the coronavirus chaos. Given that the US economy looks to be going into growth mode on its own, the merits of this policy are debatable, but one things for sure: a major component of the US stimulus spend will be on infrastructure, and that means copper.

Massive demand from China

Ultimately, it’s the Chinese that have been underwriting the strong metals prices of the past couple of decades and, with the Chinese economy now back into full growth mode, following the coronavirus blip, it looks like it will continue to be the case. Copper is used in the wiring and piping for new buildings and nowhere is building as many new buildings or at such a rate as China. China is the world’s largest consumer of copper, and is currently 25% more of the metal than it was a year ago.

Electric vehicle usage

The amount of copper used inside an electric vehicle is several orders of magnitude great than it is in a standard petrol/gasoline-power car. With electric vehicles becoming increasingly visible on our roads, and numbers certain to go higher in the coming years, automakers are going to be demanding more and more copper from their suppliers. And it’s not just for the vehicles. The metal will also be required in the associated infrastructure, particularly in connecting all the charging points that will need to be built.

Limited new supply available from mines

Copper might be riding high now, but the price hasn’t been that strong for that long. Prior to its recent run miners weren’t making particularly large profits on their copper operations and there was little incentive to start new projects. That means that there’s little in the way of extra supply coming on stream to meet all this new demand. There will be in due course, now that the price is high, but new mines take years to put into production, and are increasingly tough to permit.

Fiat currencies continue to weaken

Copper is priced in US dollars, and as is well known the US Federal Reserve has been on a massive dollar-printing binge over the past few years. There seems to be no sign that this will let up either. A greater quantity of dollars in circulation inevitably means that each dollar is worth less, or, to put it another way, any commodities that are priced in dollars are likely to be worth more. As the “bellwether for the global economy” copper is as likely a commodity as any to be subject to this upward pricing pressure, although it also effects gold, silver and a host of other metals.

Stocks to watch: Glencore () (), Strategic Minerals (), Kincora Copper (), First Quantum (TSE:FM), Central Asia Metals ().