As previously documented on BRIIDGE, the surge in industrial metals prices (nickel, graphite, lithium, copper, aluminum, etc.) was primarily driven by the rise in electric vehicle (EV) sales. However, in recent quarters, as the limitations of EVs—such as range, cost, and rapid depreciation—became more apparent to the broader market, companies engaged in the exploration, mining, and processing of these mineral resources have underperformed benchmarks.

It follows a post-pandemic surge, during which these companies achieved a positive spread of over 150% above the benchmark over an 18-month period.

Fig 1: Performance 1YR Horizon

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Fig 2: Sales Growth [1YR Rolling]

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Since then, the aluminum and other industrial metals industries have underperformed the market by approximately 45% on an equal-weight basis, reflecting the broader downturn in EVs and automobile industries. In contrast, companies focused on the exploration, mining, and processing of copper have shown a different trend.

Over the same three-year period, this segment of the industry outperformed the market by more than 45%, despite maintaining similar fundamentals to the broader industrial metals sector.This divergence can be attributed to additional tailwinds, particularly those linked to the growth of artificial intelligence (AI) and the critical role that copper plays in powering data centers and cloud infrastructure.

Moreover, the transition to renewable energy—bolstered by hundreds of billions of dollars in government fiscal stimulus—has further driven demand for copper.

The requirements for copper in renewable energy applications, due to its extensive use in pipes and cables, significantly exceed those for fossil fuels and nuclear energy, positioning copper as a key resource in this transition.As a result, investors are positioning themselves for long-term structural growth drivers in the copper market.

Fig 3: Operating Margin [1YR Rolling]

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Fig 4: Free-Cash-Flow To Sales [1YR Rolling]

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Over the past four quarters, while the median sales growth is negative for aluminum and other industrial metals, it is positive for copper. The relative outperformance of the copper industry compared to the aluminum sector can also be explained by higher margins, with gross profit in the copper industry being three times higher.

The recent government stimulus measures in China and their medium-term implications for cyclical industries, including automotive manufacturing, combined with easing monetary policy, suggest the potential for an arbitrage opportunity.

Fig 5: Net Income Margin [1YR Rolling]

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Fig 6: Performance [1YR]

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Fig 7: Dividend Yield

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Fig 8: Net Debt To Ebitda [1YR Rolling]

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