艾摩｜铜-进入2000年代的终极版

InThisReport

AnIrresistibleForce

(Demand)

1

MeetsAnImmovable

Object(Supply)

4

TheDollarElement

6

ProbingFor

AnEntryPoint

8

KeyTakeaways

8

SPECIAL

REPORT

June19,2023

Copper:EnteringA2000sRedux?

Sincetheendofthelastcommoditysupercycle,copperpricesinrealtermshave

consolidatedwithinanarrowingrange(Chart1).Havinggraduallylostthedemand

impetusfromChina’surbanizationdrive,themarkethastradedwithoutanylong-

termconviction.

Movingforward,thecoppermarketshouldstarttobearresemblancestothedynamics

ofthe2000s.Likethen,chronicunderinvestmentinsupplyandanimpendingend

tothedollarbullmarketwillactastailwinds.Thedifference,however,willcomeon

thedemandside,whereChina’sascensionwillbereplacedbytheconcertedpush

toachievea‘green’transformationoftheglobaleconomy.

Thisreportarguesthatthisisanunambiguouslybullishconfigurationforcopper.Itwillalsoponderwhethernowisanappropriateentrypointtoplayasecularbreakout,aswellassomeeffectivewaystogainexposure.

AnIrresistibleForce(Demand)...

Asametalwithuniquepropertiesforelectricalconductivity,copperwillplayacrucialroleinthecleanenergybuildout.Accordingtoourestimates,roughlytwo-thirdsofmarginalcopperdemandinthenextfewdecadeswillarisefromthis‘greening’.Theseinitiativesboildowntothreekeycategories:

•ElectricVehicles(EVs)1:ThewidespreadadoptionofEVswillbebyfarthelargestcontributingfactortotheriseinnon-conventionalcopperneeds,

1EVisacatch-alltermthatreferstofullyorpartially

electrifiedvehicles,includingbatteryelectricvehicles

(BEVs),hybrids(HEVs),plug-inhybrids(PHEVs)andfuelcellvehicles(FCEVs).

300

200

100

80

70

60

50

40

30

20

Chart1

PoisedForASecularBreakout?

Real*CopperPrice

©AlpineMacro2023

19801990200020102020

*DeflatedbyOECDconsumerpriceindex

300

200

100

80

70

60

50

40

30

20

INFO@ALPINEMACRO.COM

WWW.ALPINEMACRO.COM

COPYRIGHT©2023ALPINEMACRO

1

Copper:EnteringA2000sRedux?

SpecialReport

INFO@ALPINEMACRO.COM|WWW.ALPINEMACRO.COM|COPYRIGHT©2023ALPINEMACRO|June19,2023

Bn

1.8

1.6

1.4

1.2

1.0

0.8

0.6

0.4

0.2

Chart2

ExplodingEVRiseToDriveMarginalCopperDemand

4%

GlobalLight-DutyVehicleFleet:

EV*

ICE

pin

ro2

91%

023

eMac

©Al

Bn

1.8

1.6

1.4

1.2

1.0

0.8

0.6

0.4

0.2

2021202520302035204020452050

*IncludesBEVs,HEVs,PHEVs,andFCEVs

Source:S&PGlobal

accountingforroughlyhalfofgreendemand.Unlikeinternalcombustionengine(ICE)vehicles,EVsrequirethreetimesasmuchcopperinwiringthebatterypacksandmotors.

Moreover,theshareofEVsrelativetotheglobalfleetoflight-dutyvehiclesissettogrowfrom4%in2021toover90%bymid-century(Chart2).Thisshiftalonewilladdnearly8milliontonsofadditionalcopperdemandannuallyby2035,orroughlyathirdofcurrentconsumption.

.PowerInfrastructure:Progresstowardsupgradingenergytransmissionanddistributionshouldalsoturbochargedemandforcoppergiventhatpowergridsandchargingstationsareveinedwiththeredmetal.Chinawillplaya

Chart3

SoaringEVMarketABoonToGridUpgrades

Mn

18

16

14

12

10

8

6

4

ChinaTotalEV:

Sales*(ls)

ChargingDeviceInstallations**(rs)

©AlpineMacro2023

Mn

6.0

5.0

4.0

3.0

2.0

1.0

20192020202120222023

*Source:ChinaAssociationOfAutomobileManufacturers

**Source:ChinaElectricVehicleChargingInfrastructurePromotionAlliance

leadingroleinthisexpansionasthegovernmentattemptstobolsteritscleanenergyambitions.GiventhemassiveinvestmentinitsEVsector,theinstallationofelectricchargingdevicesisgrowingexponentiallytokeeppacewithvehiclesales(Chart3).

.RenewableEnergyGeneration:Thethreemajoreconomicblocs–theU.S.,EUandChina–areallfunnelingsubstantialfiscalsupporttobuildoutcleanenergycapacity.Thisisalsoatailwindforcopperdemandassolarandoffshorewindconsume2and5times,respectively,moreofthemetalpermegawattofinstalledcapacitythantraditionalcarbonenergyextraction.Evenunder

2

Copper:EnteringA2000sRedux?

SpecialReport

%

%

70

70

60

60

50

50

40

40

30

30

20

20

10

10

INFO@ALPINEMACRO.COM|WWW.ALPINEMACRO.COM|COPYRIGHT©2023ALPINEMACRO|June19,2023

Chart4

RenewableElectricityGeneration

ToRapidlyRampUp

Solar&Windas%of

GlobalElectricityGeneration

STEPS

APS

NZE

Conservative

assumption

©AlpineMacro2023

2030

2050

2021

Note:STEPS=StatedPoliciesScenario,APS=Announced

IiryNsionsby2050;

theIEA’smostconservativeassumptions,theannualshareofelectricitygenerationfromsolarandwindisexpectedtorisefrom10%in2021to25%in2030(Chart4).

Allthingsconsidered,thegreenenergytransitionwillsignificantlypropelmarginalcopperconsumptioninthecomingdecade.AwidelycitedreportbyS&PGlobalprojectscopperdemandtoalmostdoublefromcurrentlevelstoreach50millionmetrictonsby2035.Thisforecastiscontingentontheneedtosufficientlyscaledecarbonizationapplicationstomeet2050net-zeroemissiontargets.

Itishelpfultoplacethisforecastinthecontextofglobaleconomicoutput.Refinedcopperusageasa

1000

500

400

300

250

200

150

100

1.0

0.9

0.8

0.7

Chart5

UnprecedentedRiseExpectedInCopperUsageIntensity

World:

RealGDP*

RefinedCopperUsage*

CopperDemandIntensity:

RefinedCopperUsage/RealGDP

15%error

©AlpineMacro2023

downsidetoforeca

st

1000

500

400

300

250

200

150

100

1.0

0.9

0.8

0.7

1970198019902000201020202030

*Rebasedto1960=100;shadingdenotesprojectionsbasedon3%annualGDPgrowthafter2024,andrefinedcopperusagereaching50mntonsby2035(perS&PGlobal)

shareofglobalrealGDPpersistentlydeclinedinthethreedecadesleadingintotheearly1990s.Thisfallwasdrivenbytechnologicaladvancements,energyefficiencymeasures,substitutionforces,andtheshiftawayfromheavyindustriesindevelopedeconomies.OnceefficiencygainstailedoffandChinaenteredanurbanizationboom,copperusagerelativetooutputstabilized.

3

Copper:EnteringA2000sRedux?

SpecialReport

INFO@ALPINEMACRO.COM|WWW.ALPINEMACRO.COM|COPYRIGHT©2023ALPINEMACRO|June19,2023

Shouldadoublingincopperconsumptionby2035materialize,itwouldrepresentasurgeinusageintensityunprecedentedinmodernhistory(Chart5).Ofcourse,thisforecastmayprovetooaggressiveifglobalcommitmentstonet-zerotargetswaver.Still,copperusageshouldhandilyoutpaceeconomicactivityevenunderaconservativeassumptionofa15%downsideerrortoS&PGlobal’sestimate.

…MeetsAnImmovableObject(Supply)

Thereisnodoubtthattherelentlesspushtonet-zerocarbonwillsetcopperconsumptiongrowthonahighertrajectory.However,thiswillincreasinglycomeintoconflictwithacoppermarketgrapplingwithexceedinglyinelasticsupply.

First,yearsofproductiondeficitshavealreadydrawndowninventoriestoalarminglevels.Visiblecopperstockshavefallentobelow1%ofannualrefinedusage,orlessthan4daysofconsumptioncoverage(Chart6).Similardepletionlastoccurredinthemid-2000sascopperpricesweretakingoff.

Itistruethatexchange-heldinventoriesdonotpaintacompletepictureofcopperstocksasmanyindustrialuserswillholdtheirownreserves.Nev-ertheless,theriskofasuddenpricespiketendstorisewheneverdrawdownsinvisiblestocksbecomeacute.This‘coiledspring’behaviorofcopperpricestendstooccurwheninventoriesarelessthan2%of

refinedusageandfalling.

Second,capitalspendingintheminingindustryremainsmoribundandinsufficienttoaddresschronicsupplyshortfalls.Chart7showsthesteepdeclineincapexrelativetosalesanddepreciationamongpubliclylistedminersoverthelastdecade.

%4

3

2

1

%yoy

150

100

50

0

-50

Chart6

RefinedCopperInventories*

as%ofAnnualUsage

CopperPrice

©AlpineMacro2023

CopperInventoryDrawnDownToAlarmingLevels

%

4

3

2

1

%yoy

150

100

50

0

-50

2005201020152020

*AggregateofvisiblestocksheldatLME,CME,andSHFE

Reluctancetoinvestinnewproductivecapacitycomesdespitesteadilyrisingaveragecopperpricesfollowingtheirwash-outinearly2016.

Lookingahead,theprospectsforameaningfulriseininvestmentduringthisbusinesscyclearelow.Considerthatinputpricesanddebt-servicingcostshaverisensharplyintandemwithhigherinflationandinterestrates.Therefore,anyforthcoming

4

Copper:EnteringA2000sRedux?

SpecialReport

%

30

28

26

24

22

20

18

16

14

Chart7

MiningCapexRemains

InTheDoldrums

GlobalCopperMiningCompanies*:

CapitalExpenditure/Sales(ls)

CapitalExpenditure/Depreciation(rs)

©AlpineMacro2023

2015

2020

2010

%

350

300

250

200

150

MnTon

6.2

6.0

5.8

5.6

5.4

5.2

5.0

4.8

4.6

Chart8

PolicyUncertaintyToWeighOnWorld'sLargestCopperProducer

Chile:

CopperMiningProduction(ls)

UncertaintyIndex*(inverted;rs)

©AlpineMacro2023

2010201520202025

-2

0

2

4

6

8

10

12

*AverageofBHP,FCX,GLEN,AAL,RIO,FM,NEM,SCCO,

VALE,andTECK;source:BloombergFinanceL.P.,AlpineMacrocalculations

*Advancedby6quarters;source:EconomicPolicyUncertainty

margincompressionwouldfurtherdisincentivizecapexinfavorofpayoutstoshareholders.

Additionally,apervasiveriseinpolicyuncertaintywillalsostifletheappetiteforcapitalspending.Politicalrisk,theburgeoningembraceofresourcenationalism,andheightenedenvironmentalrequire-ments2aredovetailingintoachallenginglandscapeforcriticallyimportantproducers.

Chile,whichaccountsforaquarteroftheworld’sminedcopperore,isacaseinpoint.Theleftistrulingcoalitionisseekingtoenshrineunfetteredrightsfortradeunionstostrike,raisecopperminingroyalties,andnationalizeitsnascentlithium

2Paradoxically,thisworksagainstlonger-termeffortstogreentheglobaleconomy.

industry.Surgingpolicyuncertaintywillcompoundexistingsupplybottlenecksandlimitfuturesupplygrowth(Chart8).

Lastly,supplyoverthenextdecadewillbeconstrainedbyafewotherfactors:

.MininglaborproductivityhaslanguishedsincepeakingaroundthetimeoftheGlobalFinancialCrisis(Chart9,toppanel).Unliketheoilsector,therehavebeennomajortechnologicalbreak-throughsinthebasemetalsminingsectortoboostoutputperworkeroverthepasttwodecades.

.Thecopperindustryhasseenamulti-decadetrendofdeclinesinminedoregrade(Chart9,middlepanel).Minersoftenextracthigher-grade

5

INFO@ALPINEMACRO.COM|WWW.ALPINEMACRO.COM|COPYRIGHT©2023ALPINEMACRO|June19,2023

Copper:EnteringA2000sRedux?

SpecialReport

400

300

200

%

1.6

1.4

1.2

1.0

250

200

150

100

50

Chart9

ATripleThreatToCopperSupplyGrowth

LaborProductivityProxy*

GlobalMining:

Ore-GradeCopperMined**

CopperMineProjectPipeline***

©AlpineMacro2023

400

300

200

%

1.6

1.4

1.2

1.0

250

200

150

100

50

19902000201020202030

*MiningGDPperminingworker;averageofChile,Canadaand

Australia;source:WorldBank,IMF,OECD,AlpineMacrocalculations**Weightedaverage;source:WoodMackenzie;dashedlinedenotesforecasts

***Rebasedto2001=100;source:Glencore;WoodMackenziecopperoutlookreports

oreatthebeginningofamine’slifecycleandgothroughlower-qualityoreinthelaterstages.Thismakesitincreasinglydifficultandexpen-sivetorampuporevensustainproductionforoldmines.Itisalsoworthnotingthatadecliningoregraderequiresanincreaseinwaterandenergyconsumptionforextraction,therebyrun-ningintothefaceoftighteningenvironmentalregulations.

.Largecopperdiscoverieshavedwindledandthereisalimitedpipelineof‘shovelready’proj-ects(Chart9,bottompanel).Unlikeoildrilling,oredepositstendtobemoreconcentratedgeographically,andarenoteconomicallyrecov-erablefromoceans.Evenifinvestmentinexplor-atoryminingrampsup,theleadtimeforsupplytoreachthemarketisconsiderable.Ittakesatleast10yearsfor‘greenfield’projectstoresultinadditionalproduction.

Withsupplylikelytofallwellshortofwhatisneededtobuildoutacleanenergyeconomy,copperpriceswillhavetoadjusthigherovertimetoenticeasuffi-cientcapitalinvestmentresponse.

TheDollarElement

Inconjunctionwiththestructuraldemandandsupplybackdrop,itisalsoimperativetoconsiderhowthelonger-termoutlookfortheU.S.dollarmightfactorin.Itiswellknownthatcommoditypricesareinverselycorrelatedtothegreenback,stemmingfromthenumeraireeffect.Ifthedollardeclines,thenthedollarpriceofcoppermustrisetokeepitspricesteadyintheforeigncurrency,

6

INFO@ALPINEMACRO.COM|WWW.ALPINEMACRO.COM|COPYRIGHT©2023ALPINEMACRO|June19,2023

Copper:EnteringA2000sRedux?

SpecialReport

%

60

50

40

30

20

10

0

-10

0.2

0.0

-0.2

-0.4

-0.6

Chart10

InverseDollarRelationshipHasFirmedOverTime

5-YearCAGR:

CopperPrices(ls)

U.S.Trade-WeightedDollar*(inverted;rs)

5-YearRollingCorrelationBetweenCopperPriceandDollar**

©AlpineMacro2023

199520002005201020152020

*Source:FederalReserve

**Basedonmonthly%changes

%

140

130

-8

120

-4

110

0

100

4

90

0.2

3

0.0

2

-0.2

1

-0.4

0

-0.6

-1

Chart11

OverextendedDollarLikelyToppingOut

RealBroadU.S.DollarIndex*

Trend

StandardDeviationFromTrend

©AlpineMacro2023

19801990200020102020

*Source:FederalReserve

140

130

120

110

100

90

3

2

1

0

-1

andviceversa(Chart10).Forcopper,thisinverserelationshipappearstohaveonlystrengthenedovertime.

Today,itisapparentthatthedollarhasmarkedlyovershotitshistoricaltrend(Chart11).Therealeffectiveexchangerateislikelyinatopping-outprocessafterrecentlysurpassingthecyclicalpeak

madeatthebeginningofthenewmillennium.Thoughtheexacttimingforanewbearmarketisuncertain,itmaybeprecipitatedbyaneventualdovishpivotfromtheFed.Similartowhattrans-piredinthe2000s,afallingdollarwoulddeliveranaddedtailwindtocopperpricesamidalreadybullishfundamentals.

7

INFO@ALPINEMACRO.COM|WWW.ALPINEMACRO.COM|COPYRIGHT©2023ALPINEMACRO|June19,2023

Copper:EnteringA2000sRedux?

SpecialReport

$/Ton

$/Ton

11000

11000

10000

10000

9000

9000

8000

8000

7000

7000

6000

6000

5000

5000

INFO@ALPINEMACRO.COM|WWW.ALPINEMACRO.COM|COPYRIGHT©2023ALPINEMACRO|June19,2023

ProbingForAnEntryPoint

Thisreporthaslaidoutthesecularcaseforhighercopperprices.However,itisalwayscriticalforinvestorstodifferentiatebetweenforecastandstrategy.Theobviouscyclicalrisktocopperisconsumptionrestraintthatcouldarisefrompolicyratehikes,aswellastheso-farmutedreopeningofChina.Couldthesefactorsportendasharpslumpinthepriceofcopper,atleastinthenearterm?

Wedon’tthinkso.

Asnotedearlier,thecoppermarketisbesetwithapersistentsupplydeficit.Thisshouldlimitanydropinprices.

Furthermore,itiswellunderstoodthatcopperishighlyanticipatoryofinflectionsintheglobalbusinesscycle.The35%peak-to-troughfallinpricesin2022probablydiscountedtheaggressivemonetarytighteningandtheresultantglobalgrowthslowdownorevenrecession.Meanwhile,copper’sdeclinethisyearislikelyanunwindingofexpectationsforapost-lockdownboominChineseactivity.

Steppingback,atechnicalreadingsuggeststhatcopperpricesarefindingsupportfromtherisingtrendlinedrawnoffthe2020Covidlows(Chart12).Therefore,thecurrentlevelrepresentsanattractivebuyingopportunityforgaininglong-termexposuretothemetal.

KeyTakeaways

.Marginalcopperdemandoverthecomingdecadewillcatapulthigherasthegreenenergytransitiongatherspace.

Chart12

CopperUptrendFromCovidLowsRemainsIntact

CopperSpotPrice

©AlpineMacro2023

20192020202120222023

.Depressedinventories,sluggishcapitalspending,andtechnologicalbottleneckspaintanutterlybleaklong-termsupplypicture.

.Copperpriceswillhavetomoveconsiderablyhigheronaseculartimeframetoinduceasufficientsupplyresponse.

.Aloomingdollarbearmarketwilladdfurtherfueltoastructuralbullmarketincopper.

.Currentcopperpricelevelsofferanattractiveentrypointforplayinglong-termupside.

Investorsseekingcopperexposureshouldover-weightminerswithinanequityportfoliogiventhatsimilarbullishcasescanalsobemadeforother

8

Copper:EnteringA2000sRedux?

SpecialReport

metalssuchasnickel,cobaltandlithium.Strategic

allocationtocommodities,particularlythoserelated

tobasemetals,shouldalsobeincreased.

Meanwhile,countrieswithlargecopperproduction

andreservessuchasChileandPerumaybenefit

fromaprolongedterms-of-tradeimprovement.

However,cautioniswarrantedbeforeraising

exposuretotheseregionsuntiltherearesigns

thatpolicyuncertaintyisdiminishingandonerous

regulationsarebeinglifted.

BassamNawfal

ConsultingStrategist

EDITORIALBOARD

ChenZhao

ChiefGlobalStrategist

DavidAbramson

ChiefU.S.Strategist&

DirectorofResearch

HenryWu

Headof

QuantitativeResearch

JackieHuang

SeniorResearchAnalyst

RahulGonuguntla

ResearchAnalyst

AngelinaMo

ResearchAnalyst

TonyBoeckh

Editor-in-Chief

YanWang

ChiefEM&ChinaStrategist

HarvinderKalirai

ChiefFixedIncome&FXStrategist

MarkMcClellan

ChiefU.S.BondStrategist

CarolineMiller

ChiefAssetAllocationStrategist

DanAlamariu

ChiefGeopoliticalStrategist

BassamNawfal

ConsultingStrategist

ALPINEMACRO

INFO@ALPINEMACRO.COM|WWW.ALPINEMACRO.COM|COPYRIGHT©2023ALPINEMACRO|June19,2023

9

InvestmentRecommendations

GlobalStrategy

InvestmentRecommendations

TacticalInvestmentPositions(3-6months)

Recommendations

LongLong-dated

TreasuryBonds(ETF:TLT)

LongS&P500Index

(ETF:SPY)

LongUSO

Long10-YearMexican

BondsUnhedged

LongGold

ShortUSDVersus

50%EUR&50%JPY

LongNikkei225

Unhedged

LongBrazilian10-YearGovtBondsUnhedged

Open

Date

05/01/2023

03/13/2023

05/01/2023

04/10/2023

05/01/2023

05/01/2023

05/08/2023

05/29/2023

Open

Levels

103.13

385.36

66.55

8.82%

1,983

1.10&

136.6

28,950

11.59%

Stop

-

-

-

-

-

-3%

-

-

Closing

Date

-

-

-

-

-

-

-

-

Closing

Levels

-

-

-

-

-

-

-

-

P&L

SinceInception

-0.25%

16.40%1

-3.31%

8.18%

-1.32%

-1.85%

11.24%

6.91%

Note:P&Liscalculatedusingdailyclosingprices.

1Includingthe1.5%gainrecordedwhenthistradewasstoppedouton03/10/2023.

Disclaimerandcopyrightrestrictions©2023,AlpineMacro.Allrightsreserved.

Theinformation,recommendations,analysisandresearchmaterialspresentedinthisdocumentareprovidedforinformationpurposesonlyandshouldnotbeconsideredorusedasanofferorsolicitationtosellorbuyfinancialsecuritiesorotherfinancialinstrumentsorproducts,nortoconstituteanyadviceorrecommendationwithrespecttosuchsecurities,financialinstrumentsorproducts.Thisdocumentisproducedforsubscribersonly,representsthegeneralviewsofAlpineMacro,anddoesnotconstituterecommendationsoradviceforanyspecificpersonorentityreceivingit.Thetext,imagesandothermaterialscontainedordisplayedonanyAlpineMacroproducts,services,reports,emailsorwebsite(includingthisreportanditscontents)arecopyrightedmaterialsproprietarytoAlpineMac-roandmaynotbecirculatedwithouttheexpressedauthorizationofAlpineMacro.Ifyouwouldliketouseanygraphs,text,quotes,orothermaterial,youmustfirstcontactAlpineMacroandobtainourwrittenauthorization.AlpineMacroreliesonavarietyofdataprovid-ersforeconomicandfinancialmarketinformation.ThedatausedinthispublicationmayhavebeenobtainedfromavarietyofsourcesincludingBloombergFinanceL.P.,Macrobond,CEIC,Choice,MSCI,BofAMerrillLynchandJPMorgan.Thedataused,orreferredto,inthisreportarejudgedtobereliable,butAlpineMacrocannotbeheldresponsiblefortheaccuracyofdatausedherein.

10

INFO@ALPINEMACRO.COM|WWW.ALPINEMACRO.COM|COPYRIGHT©2023ALPINEMACRO|June19,2023

AboutAlpineMacro

AlpineMacro,foundedin2017,isanindependentglobalinvestmentresearchfirmbasedinMontreal,Canada.Wefocusontheanalysisofmajormacroeconomicforcesandspecializeinforecastingthedirectionofglobalfinancialmarkets,whileprovidingactionablerecommendationsoninvestmentstrategyandassetallocation.

OurLeadership

ChenZhao,ChiefGlobalStrategistFrom2015to2016,ChenwasCo-DirectorofMacroResearchatBrandywineGlobalInvestmentManagement.PriortoBrandywineGlobal,Chenspent23yearsatBCAResearch.AsaPartner,ManagingEditorandChiefGlobalStrategist,ChencreatedandwroteBCA’sChinaandEmergingMarketspublicationsinthe1990s,andwastheauthorofBCA’sflagshippublication,GlobalInvestmentStrategy,from2005to2015.

J.AnthonyBoeckh,PhD,ExecutiveChairman&Editor-In-ChiefTonywaspreviouslyFounder,Chairman,ChiefExecutiveandEditor-In-ChiefofMontreal-basedBCAResearchfor34years.HeauthoredTheGreatReflation(Wiley)in2010andwaspublisherof,amongothers,theBankCreditAnalyst,amonthlybig-pictureanalysisoftheU.S.andglobaleconomiesandfinancialmarkets.

Da