The copper trade hiding in plain sight

Spent twenty minutes this morning trying to find an electrician. Third firm in a row with a six-week wait. Copper wiring, copper pipes, copper everywhere — and apparently nobody to install it. Fitting week to write about the metal.

Copper hit a record $14,527 per metric ton on the London Metal Exchange in January. It's pulled back since. That pullback is the opportunity — not because the price will immediately rebound, but because the underlying supply picture has gotten worse while the stock prices of the companies that dig it up have softened alongside the metal.

Supply shocks drove copper's 40% surge since the start of 2025, led by a catastrophic mudslide at Indonesia's Grasberg mine — the world's second-largest copper producer — which took out nearly 70% of the mine's output and won't be fully repaired until at least mid-2026. That's one mine. The structural picture underneath it is grimmer. BloombergNEF warns that copper demand for the energy transition could triple by 2045 and the metal may enter structural deficit as early as 2026. J.P. Morgan forecasts a refined copper shortfall of 330,000 metric tons this year alone.

The demand side isn't slowing. AI data centres need copper for busbars, cooling systems, and grid connections. Each new generation of AI chips is more power-intensive than its predecessor, and all of that power runs through copper. Defence procurement is a third driver most analysts aren't pricing in: copper is essential in ammunition casings, guided missile wiring, and naval vessels — all of which are being ordered at volumes not seen since the Cold War.

The stock-flow setup: new greenfield copper supply requires prices above $20,000 per tonne to justify capital deployment, given permitting timelines and capex costs. That means meaningful new supply won't arrive before the end of the decade even if projects broke ground today. The miners sitting on existing low-cost assets are the ones worth owning.

That's Hensoldt's order book as of end-March 2026, up from €6.93 billion a year ago — a 41% jump in twelve months. Q1 revenue rose 25% year on year to €496 million. The stock is down 25% from its 2026 peak. A company whose backlog is growing 41% annually, trading at a 52-week low. That's the mispricing.

Everyone knows Rheinmetall. The stock is up over 1,600% in five years and the name appears in every defence ETF pitch deck. That trade has been made. The question worth asking is where the next leg of European rearmament money actually flows — and the answer is into the tier-two suppliers that the market hasn't yet repriced to match the order books they're now carrying.

Janus Henderson's portfolio managers argued in February that the scale and duration of Europe's rearmament cycle remain underappreciated, with orders only beginning to build. They're right about the duration. NATO allies committed at The Hague to raise core defence spending to 3.5% of GDP by 2035 — up from the prior 2% target — with a further 1.5% earmarked for broader security investment. Germany alone budgeted €108 billion for defence in 2026, a 25% year-on-year increase, with a target to reach 3.5% of GDP by 2029, six years ahead of NATO's schedule.

The spending is real. The capacity to deliver it is the constraint. The next leg is about who can translate backlog into cash flow — and that points toward electronics, sensors, and specialist components rather than the headline ammunition and vehicle names. Hensoldt's Jefferies analyst cited a €48 billion proposal pipeline supporting near-term order visibility, with two separate Buy ratings and price targets of €90 to €101 against a stock currently trading well below those levels. Simply Wall St's DCF analysis puts Hensoldt's fair value at €138.90 against a current price that's roughly half that. Projected annual earnings growth of 29.3% is the other number the market seems to be ignoring.

The headline reads: European defence stocks down 25% from 2026 peaks, the Stoxx Europe Aerospace and Defence index trailing the broader market year-to-date. Investors see that and assume the whole sector got ahead of itself. That's the wrong conclusion drawn from the right data.

Rheinmetall is the one that's expensive — it should be, given its dominance in ammunition and ground systems. But when Rheinmetall drops 9% on an earnings miss, Hensoldt and RENK fall alongside it because sector ETFs sell everything indiscriminately. That's a flow problem, not a fundamental one. The EU's €800 billion rearmament programme doesn't distinguish between Rheinmetall's tanks and Hensoldt's radar systems. The order books certainly don't. Selling everything because the most expensive name disappointed is how mispricings get created.

J.P. Morgan: Copper Prices Outlook The clearest single-bank view on copper demand sensitivity to oil prices and the Iran conflict's knock-on effects. J.P. Morgan

Crux Investor: Copper Inventory Paradox Why record exchange inventories are a timing signal, not evidence of oversupply — and what the Collahuasi and Escondida grade declines actually mean for supply. Crux Investor

Hensoldt Q1 2026 Results Breakdown Revenue up 25%, order intake more than doubled, book-to-bill ratio at 3x. The numbers Jefferies used to reiterate Buy. Capital.com

Janus Henderson: Europe's Rearmament Underappreciated The fund manager case for why the cycle lasts a decade and why near-term price weakness is noise. Janus Henderson

Armchair Trader: 2026 Defence Catalysts On the Czechoslovak Group IPO — 14x oversubscribed — and what that demand signal means for pure-play defence equity scarcity. Armchair Trader

Motley Fool: Small-Cap Valuation Gap The S&P 600 is trading at a forward P/E of 16 vs. the S&P 500's 21.7. Bank of America projects 17% small-cap earnings growth in 2026. The setup in one article. Motley Fool

Still waiting on that electrician. Six weeks they said. The copper wiring will get installed eventually. The companies that supply it probably will too.