Following the launch of a new ETF, firm leader explains why this base metal should be exciting investors
Copper has been a commodity since the dawn of civilization. The base metal was the subject of the oldest known written complaint, a cuneiform tablet written in the ancient Mesopotamian city of Ur which alleges that a merchant named Ea-nasir sold poor quality copper ingots around the year 1750 BCE. While copper was important enough 3775 years ago to inaugurate the proud human tradition of complaining to the manager, one ETF issuer says it’s important enough today to be worthy of dedicated and direct exposure.
Chris McHaney, EVP and Head of Investment Management and Strategy at Global X explained the supply and demand dynamics driving price appreciation for copper now. He outlined how the metal has become a valuable commodity in the ongoing AI and data centre boom and introduced how the dynamics of deglobalization are driving new appreciation opportunities. He explained, too, how advisors and investors can get exposure to the metal, outlining why his firm has elected to focus on baskets of copper mining equities.
“Supply is low because similar to most other commodities, it gets ignored for a while. And it's not easy to just snap your fingers and have more Copper come online, you need to dig it out of the ground, you need to refine it,” McHaney says. “Over the last 10+ years, commodities in general were under-invested, and copper was one of those metals. Then you have a situation where demand has started to pick up substantially, and supply will be lagged in its ability to capture that.”
Copper, a highly conductive metal, is essential to the AI data center and electrical infrastructure trend that has become a key market and economic driver in recent years. All of that infrastructure needs copper to function. Defense spending has also ratcheted up globally, and copper is a key input in the defense technologies that many countries and companies are investing heavily in. At the same time, McHaney notes that the ongoing move towards deglobalization and tariffs has meant that more countries are investing in domestic copper production and eschewing copper produced in foreign markets. That push brings more dollars into the industry and drives additional price appreciation.
While the supply and demand dynamics behind copper are relatively straightforward, and fall in line with the broad commodity super-cycle that McHaney believes is ongoing, that doesn’t mean the appreciation of copper won’t face hurdles or setbacks. McHaney stresses the point that these cycles are rarely linear, and that this ongoing appreciation is tied closely to economic activity. Should the US stop building data centers and nuclear power plants, or China stop building new cities and their own data centers, then there may be a pullback in the price of copper. The process of reshoring production, too, may result in periods of overproduction which can be a setback for ongoing appreciation. While McHaney believes the case for copper is strong, he argues for an approach that stays cognizant of those risks.
The two copper ETFs offered by Global X hold shares of copper mining companies, rather than direct exposure to the metal as would be found with a gold bullion ETF. McHaney explains that when dealing with a metal like copper, the storage costs of holding enough physical copper to gain meaningful price exposure are prohibitively expensive. Mining equities, therefore, offer the most efficient means of delivering exposure, especially when globally diversified. He argues that this makes the exposure somewhat more intuitive for investors, who would hold copper in the equities sleeve of their portfolio.
Mining equities, McHaney notes, will offer some exposure to the price of copper. The association will not necessarily be linear, however. Companies with a certain degree of debt might be a means of gaining more leveraged exposure to copper prices for potentially higher returns. Those companies may also behave more in line with their broader equity markets or, in the case of certain large mining conglomerates, may have exposure to other metals beyond copper.
For advisors who want to start talking to their clients about copper, McHaney notes a few developments that have raised the metal’s profile in the public eye. Beyond just the AI and data center stories, Canada has recently announced two copper mining initiatives through the new federal major projects office. The United States, too, just added copper to their list of critical minerals. There is enough in the global macro story that can make this base metal shine.
“There are many points to talk about, but one of them is the connection to the AI trade. It's about another way to participate in this investment and this build out that's happening…but that doesn't mean you want to necessarily buy more Microsoft or buy more Nvidia at 40 times earnings or whatever the multiple is,” McHaney says. “This is a great way to be able to capitalize on that sort of demand without allocating to tech directly.”
