Goldman Sachs metals strategist Nick Snowdon believes the global renewable power drive will push copper prices from the current US$4.29 per pound to US$6.80 per pound by the end of the decade. He adds that the fundamental supply and demand outlook is so dire that he doesn’t rule out an “absolutely ballistic” temporary price spike to over US$20 per pound before 2030.
Mr. Snowdon appeared on Bloomberg’s Odd Lots podcast on May 30 (available on Apple podcasts here and Google here) with a remarkably bullish story. The key points were that copper inventories are already low, the metal is largely irreplaceable as an electricity conductor for electric vehicles and renewable power, and there’s little-to-no new copper production on the horizon.
Goldman Sachs estimates global copper production of 24 million tonnes for 2022. Of that only 1.5 million tonnes will be consumed by decarbonization efforts - primarily electric vehicles and new wind and solar power.
Renewable power-related demand for copper, however, is set to climb to between six and seven million tonnes annually by 2030, according to the strategist.
There has been, in Mr. Snowdon’s words, “a complete absence of fresh investment in the sector” despite the expected jump in demand. This sets the stage for the largest ever copper supply deficit by the middle of this decade.
Mining companies have remained disciplined on spending. The permitting process for new mines has extended in length from six to 12 months in the 2000s to between two and three years now. The end result is that not a single new copper mine has been approved over the past 24 months. There are previously permitted projects coming onstream in Latin America and Africa in the next 18 months, but nothing afterwards.
For Mr. Snowdon, the expected supply shortage “is not resolvable at current prices,” meaning that prices are too low now to spur the necessary investment in new production. Decarbonization will not be possible without much higher copper prices first.
The commodity price has been weaker of late, down 11.5 per cent from the five-year high hit in March of this year. Goldman Sachs attributes this to lower demand from a lockdown-ed China and higher-than- expected exports from Russia. If Mr. Snowdon’s longer-term forecasts are correct, this will prove an ideal time to add to domestic copper miners like First Quantum Minerals Ltd., Lundin Mining Corp, or Teck Resources Ltd.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Nutrien Ltd. (NTR-T) The fertilizer producer’s share price has declined 14 per cent since peaking at a record high in April. The company has significant earnings growth forecast for this year and is currently trading at a reasonable valuation. The average target price is approximately $155, implying the share price may rally roughly 26 per cent over the next year. On June 9, management will discuss its strategic priorities and objectives during a virtual investor update, which may give the share price a bit of a lift. A bigger catalyst may come in August. Jennifer Dowty tells us more about the investment case for buying its shares on the recent dip.
The Rundown
Looking to add more defense to your portfolio? Consider these often overlooked sector ETFs
Over the years, Gordon Pape often recommended utilities and telecoms as key elements in creating a low-risk portfolio. But a sound defensive portfolio needs more diversity. The poor market performance numbers of late suggest that both health care and consumer staples should be added to the list. Gordon has a couple of ETF recommendations to gain exposure.
How influencers hype crypto, without disclosing their financial ties
The collapse in crypto prices in May has renewed scrutiny of the celebrity marketers who sell virtual currencies to the masses. Over the last year, actor Matt Damon and comedian Larry David have starred in high-profile TV commercials for crypto platforms, trumpeting digital assets as an unmissable moneymaking opportunity. A far seedier form of crypto promotion has flourished on social media, rife with undisclosed conflicts of interest and exaggerated claims about skyrocketing profits. In some cases, promoters have admitted that they failed to disclose personal or financial ties to projects advertised on their feeds, a potential violation of federal marketing regulations. And even before the crypto market’s recent downturn, a series of these influencer-backed ventures had crashed spectacularly, hurting amateur traders and prompting lawsuits that could force some celebrities to compensate investors for their losses. David Yaffe-Bellany of The New York Times takes a closer look.
Sizzling energy stock rally confronts global growth worries
A scorching rally in energy shares has left investors facing a tough decision: hold on despite growing worries that global growth will slow or lock in profits in one of the few areas of the stock market that has thrived this year. So far, energy shares have weathered hawkish pivots from the Federal Reserve and other central banks, which have stoked worries about slowing growth that could crimp energy demand. Still, there are signs some investors may be taking profits: while the sector is up 11% since late April, there have been five straight weeks of net outflows for energy sector funds overall, according to Refinitiv Lipper data. Lewis Krauskopf of Reuters reports.
Others (for subscribers)
John Heinzl’s model dividend growth portfolio as of May 31, 2022
U.S. stock rally not enough to save ARK from record 7-month losing streak
Wednesday’s analyst upgrades and downgrades
Tuesday’s analyst upgrades and downgrades
Wednesday’s Insider Report: CEO and Chairman were buyers after this stock tumbled into deeply oversold territory
Tuesday’s Insider Report: Chairman invests nearly $1-million in this stock forecast to almost double in value
Trades in Russian shares show investors testing the exits
Globe Advisor
Fund industry heavyweights muscle in on ETF market
How falling mutual fund fees are raising the bar for the investment industry
Are consumer discretionary stocks a harbinger of gloom or a buying opportunity?
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Ask Globe Investor
Question: Is now a good time to invest in the stock market? The way things have been going makes me nervous.
Answer: Even after markets rallied last week, the S&P/TSX Composite Index was still down nearly 7 per cent from its record high in early April, and the S&P 500 was down about 14 per cent from its January peak.
But here’s the thing: Those losses have already happened. They are in the past. All else being equal, stocks are actually a better value today than they were a few months ago. As Warren Buffett once said: “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
Sure, markets could continue to fall in the short run, but it’s also possible they could rise. Nobody knows. All we know for sure is that historically, over the long run, stock markets have risen. So, if you diversify and have a long-term horizon, now may be as good a time as any to invest.
--John Heinzl (E-mail your questions to jheinzl@globeandmail.com)
What’s up in the days ahead
Cannabis stocks have never been so unpopular. But are they now the ultimate contrarian investment? David Berman will share some insight.
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Compiled by Globe Investor Staff