The pandemic has upended supply chains all over the world. Some of these wrinkles will be ironed out quickly. Others will take a lot more time.
The big challenge for an investor is to sort the short-term themes from the long-term themes.
Short-term themes can dominate the narrative, but the big themes run more quietly, and for years… So, identifying them early is where the big gains come from.
Lumber prices, for example, are a short-term problem. The price of lumber has risen 256% since this time last year.
Of course, the U.S. hasn’t run out of trees… Far from it. The supply shortage is due to a homebuilding boom that sawmills can’t keep up with. But with so much money to be made in this boom, it’s only a matter of time before more sawmills open.
Another reason prices jumped is lumber companies closed unprofitable operations in 2019. British Columbia alone closed four massive plants. At the time, prices were too low… Today they’re so high, people are thinking twice about renovating their homes or starting new construction.
As soon as sawmills re-open, the price will come back down. That decline might have already started… As prices have fallen 10% in the last week.
Lumber definitely falls into the short-term problem category. Any trades on lumber, at least for now, should stay in this timeframe.
Copper, however, is a long-term supply problem. And that makes it a much bigger, quieter, long-term opportunity.
It takes years, sometimes decades, to bring a major new copper mine online. Most new mines are in rather inhospitable places. You need to build railroads to bring the materials in to build the mine and cart the ore out. That’s a major undertaking. Dealing with officials, diplomats, and landowners slows everything down.
Also, humans have been mining copper for thousands of years… It’s reasonable to conclude the easy metal has already been found. Meanwhile, major new sources of copper demand have appeared over the last few years.
Historically, copper’s been used in circuitry and transmission wires. But today, electric motors and batteries are driving whole new sectors from electric vehicles to wind turbines.
According to Wood McKenzie, a wind turbine needs 3.5 tonnes of copper wire for every 1 megawatt (MW) of power. The average size of a new onshore wind turbine in the USA today is 2.5-3MW – at least 8 tonnes of copper per windmill.
Construction plans for new wind turbines are ambitious. They represent a country-sized addition to global copper demand.
This is the kind of story that requires a supercycle to develop new sources of supply…
I’ve heard lots of analysts talking about a new supercycle in oil. The problem with that argument is there’s no shortage of oil… Everyone knows where to find it.
The last commodity supercycle focused on finding a new source of cheap oil. And it worked… The U.S. is now energy independent.
So, in my view, the next supercycle is about finding big new sources of cheap copper, not oil… And we’re just at the beginning of that process.
The Global X Copper Miners ETF (COPX) might be a good place for investors to look. Take a look at the chart…
It completed a seven-year base formation in January and has been consolidating over the last month. The fund is internationally diversified and holds the world’s largest current copper miners.
Investors looking for a high-conviction, long-term play should pay close attention to copper… And be wary of short-term themes like lumber – and a supposed “oil supercycle” – that dominate the commodities narrative.
All the best,
Eoin Treacy
Co-Editor, Market Minute
P.S. Before you go, I want to put another important theme on your radar…
This coming Wednesday, my colleague and good friend Jeff Clark is putting on a special presentation that might surprise you…
You see, Jeff Clark is best known for his option trading… Affinity for gold… And general skepticism of the stock market.
So, when he told me recently that stocks are due for a major tailwind, in the form of $20 trillion in new capital, it got my attention. Jeff even crafted a new trading strategy around this tailwind… And has so far generated returns like 131% in a couple weeks, 158% in a month and a half, and even 148% in just over two months for his subscribers by using it.
He’ll explain everything in Wednesday’s presentation starting at 8 p.m. ET. And he’ll even share three trade opportunities, completely for free, so you can test out the strategy for yourself. Sign up right here to reserve your spot.