Copper at $40,000? Here's The Trade.

The name of hedge fund manager Pierre Andurand is unfamiliar to most American investors. But it shouldn’t be; he is right more often than he is wrong on commodities - and in a big way - with his Andurand Capital funds.

Despite a loss last year, his main fund has an annualized net return from its inception in June 2019 of 34%. One of his funds enjoyed blockbuster gains in excess of 100% in the year through March 2022, thanks to rising oil prices.

And earlier this year, he minted a bundle as cocoa prices hit a record $11,722 per metric ton, after more than tripling in just over a year. Climate change is leading to shortages of both cocoa beans and coffee beans.

Andurand’s $1.3 billion Commodities Discretionary Enhanced fund is up 83% so far this year. And now, Andurand is jumping aboard the copper train.

$40,000 Per Ton Copper

He’s telling everyone to get ready for copper (HGN24) to soar to $40,000 per metric ton. It is currently trading at around $10,290 a ton, for perspective.

Copper has risen about 21% this year, touching a record $11,000 a ton this past week. Andurand thinks the rally has much farther to run, as supply struggles to keep up with demand.

He told the Financial Times: “We are moving towards a doubling of demand growth for copper due to the electrification of the world, including electric vehicles (EVs), solar panels, wind farms, but also military usage and data centers. I think we could end up to $40,000 per ton over the next four years or so. I’m not saying it will stay there then; eventually we will get a supply response, but that supply response will take more than five years.”

Keep in mind that S&P Global (SPGI) came out with a study last year that found discovery to production for mines averages 15.7 years.

The recent bid for rival Anglo American (NGLOY) by BHP Group (BHP) is the latest evidence that it is more difficult and expensive to build a new mine, rather than just buying a rival with copper mines.

Andurand is not the lone bull on copper, or metals in general.

Metals Bull Run

Recent buying from futures market traders has pushed prices of metals, such as copper and gold (GCM24), to all-time highs. Copper has rallied 30% since the start of March to its highest level ever. 

That has helped lift the prices of other industrial metals, from aluminum to zinc, which jumped between 15% and 28% since the start of April.

This should not have come as a surprise to anyone paying attention. Last year, strong demand helped deplete inventories to historic lows, yet prices dropped because of Wall Street shorting of metals broadly.

In looking specifically at copper, there is a research paper from the International Energy Forum (IEF) - the world's largest international organization of energy ministers from 73 countries, which includes both producing and consuming nations.

Its study found that just to meet business-as-usual trends, 115% more copper must be mined in the next 30 years than has been mined historically until now. And to electrify the global vehicle fleet requires bringing into production 55% more new mines than would otherwise be needed.

Copper demand was extremely strong in 2023, growing 7.3% year-on-year over the first 10 months, according to the World Bureau of Metal Statistics (WBMS).

It’s important to note that nearly all copper demand growth came from the so-called developing world. The largest of these countries are China, India, and Indonesia.

Everyone knows about China being the largest consumer of copper. But India and Indonesia are growing by leaps and bounds.

India should increase its annual copper consumption nearly four-fold from current levels over the coming decade. Although this sounds extreme, Chinese copper demand increased by over four-fold between 2000 and 2010.

As for Indonesia, it's forecast to consume five times its current rate of copper in about a decade.

This Copper ETF is a Buy

It will be very hard to fix the supply picture underpinning copper’s rally. The tightening supply picture, added on top of the artificial intelligence- and EV-related demand boost, means we’re at an inflection point for global demand.

While copper may not reach $40,000 a ton, it is definitely on an upward trajectory. I believe the best way to play this is through an ETF that owns the mining companies that have major exposure to copper.

The iShares Copper and Metals Mining ETF (ICOP), which has 35 stocks in its portfolio, is a good choice. It is up over 27% year-to-date and about a third since inception in June 2023. It’s a buy anywhere around its current price of $32.59.