Renewable Energy to be Major Copper Demand Driver

Interview conducted by Nicole Rashotte; article text by Olivia Da Silva.

While Goehring & Rozencwajg Managing Partner Adam Rozencwajg has a rough outlook on investor sentiment towards the resource space, his optimism can be found in the copper market.

In a conversation with the Investing News Network at Mines and Money New York, Rozencwajg explained his firm’s stance on recent negativity towards resource stocks.

“I can never remember investor sentiment being so negative towards resource stocks in general, both on the mining side and on the energy side. We look at data going all the way back 100 years, and we look at the price of commodities relative to the price of the Dow Jones (INDEXDJX:.DJI) or the S&P (INDEXTSI:OSPTX), and in both cases you’re at a 100 year low,” he said.

“Moreover, if you look at the commodity stocks over that time, you’re also approaching a new low, so you’re certainly at the bottom of the cycle. Investor sentiment is really as bad as I’ve ever seen it.”

Although resource stocks are facing a tough go, Rozencwajg expressed that his firm is “very, very bullish” on the copper market right now, saying that demand coming from multiple different sources is going to drive the base metal going forward.

“One of the sources is going to be China, and the reason I say that’s controversial is because most people believe that China has over-consumed copper in the last decade or so, and that it’s only a matter of time before that hits a wall and begins to slow dramatically — we think just the opposite,” he said.

He explained that his firm feels a country’s annual copper consumption shouldn’t be such a primary focus, and that the bigger aspect to watch is how much copper a country has installed into its economy.

“Based on where China is today, it has exactly the right amount of copper installed, it has not been over-consuming according to our models, so as China grows we think demand will grow too.”

On the other hand, Rozencwajg added that India is “woefully behind” where it should be, but noted that, if the country were to catch up with regards to its per capita GDP, it would serve as a huge source of copper demand in the coming decade.

As the conversation began to wind down, the question on everyone’s mind with regard to copper came to light: What’s your opinion on the electric vehicle (EV) story? Though the EV movement has played a growing role in copper demand as of late, Rozencwajg is less confident in the emerging EV market and suggested that traditional vehicles are far from out of the game.

“While it will continue to grow and while the demand for it is there — as what we like to call a ‘play thing’ for the wealthy — I think the ability of EVs to really displace internal combustion engines on a broad basis will be fairly limited,” he said.

“It’s more efficient once the energy gets put into the car, but the actual energy to manufacture the battery in particular is very, very difficult. It’s very high and we see it unlikely to decline to a point where it will be competitive with internal combustion engines.”

Though the rise of EVs may not play as big a role in copper demand as the market is predicting, Rozencwajg is placing his chips on renewable energy to be what drives the red metal going forward.

“People don’t fully appreciate that to generate electricity via either solar or wind, it’s anywhere between 30 to 40 times as copper intensive as traditional coal– or natural gas-fired plants,” he said. “What’s happened to copper demand in Germany, Spain and Italy over the last decade … you can see a huge divergence where all three of those countries that have pushed large renewable mandates, their copper demand is actually flat to slightly up.”

He added, “That’s all consistent with renewable power being 30 to 40 times as copper intensive as traditional forms of electricity, and to the extent that that continues to be a trend going forward, I think that’s really going to drive copper demand.”

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Securities Disclosure: I, Olivia Da Silva, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.