The Motley Fool

Is Copper on its Way to $9,000 by the End of the Decade?

A recent report from Citigroup Inc. is suggesting that the price of copper could reach US$8,000 a metric ton by 2022 and potentially surpassing US$9,000 by 2028.

The report went on to suggest that the investors may want to “prepare for a decade of Dr. Copper on steroids.”

What’s particularly interesting is that the report comes out amid a pretty serious slump in the metal, including hitting a fresh 52-week low just last week.

The benchmark price for copper closed at US$6,152 a ton in London on Tuesday.

Copper prices have found themselves falling sharply in recent weeks thanks to escalating trade tensions between the U.S. and China.

Proposed tariffs on goods traded between the two countries – even if they end up being temporary – would almost certainly hamper growth in the short term.

China is the world’s largest buyer of copper and is already experiencing declines in manufacturing and industrial activity.

The additional impact of burdensome tariffs would likely only make matters worse.

However, yesterday’s report appears to contradict that view, as a higher forecast price for copper typically implies a “bullish” outlook for global economies, as because of copper’s widespread use in manufacturing, construction and electricity, it is often considered as a bellwether for economic activity.

Wondering about the reason for the discrepancy?

Instead of focusing on demand-side factors like economic activity in the U.S. and China, the Citigroup report instead focused on supply-side factors as the key reason to get behind copper manufacturers like Teck Resources Ltd. (TSX:TECK.B)(NYSE:TECK), First Quantum Minerals Limited (TSX:FM) and others.

The bank, as well as several other influential analysts and miners are all in agreement that there is a supply shortage facing the market,  which should lead to higher realized prices for producers.

“The overall lull we’re seeing in project development will start to weigh on the market and we’ll start to see supply fall well behind what are relatively conservative demand forecasts,” Daniel Hynes, a senior commodity strategist based in Australia recently said in an interview with Bloomberg TV.

Meanwhile, even if demand were to soften in markets like China, analysts see emerging trends like increased urbanization and renewable energy, including electric vehicles as newer sources of growth for copper markets.

Bottom line

Companies like Teck Resources and Freeport-McMoRan Inc. have seen their share prices rise by six, and three-fold, respectively, since the beginning of 2016.

While that may be enough to give some investors pause, the share prices of those two companies still remain at less than half the prices of their all-time highs.

In what has for the most part been a pretty tepid couple of months in the markets, investors may want to consider taking a closer look (link) at one or two of these copper producers, perhaps getting the added benefit of a little momentum boost to their Foolish portfolios.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Jason Phillips has no position in any of the stocks mentioned.

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