What You Should Know Before Investing in Copper

The demand for copper has surged, especially in the industrial sector, rising roughly five times in value from 2001 to 2022.

S&P Global, one of the top leading investment firm has predicted that the demand for copper would double by 2035, from 25 million metric tons to 50 million metric tons.

CNBC reported last February 6, 2023 that the world is currently facing a global shortage of copper. This is fueled by the supply problems in South America and the higher demand for copper.

The report also stated that copper is a leading pulse check of economic health due to its uses in electrical equipment and industrial machinery. It is heavily used in home building, electronics, electrical conductivity, automobiles and infection control, especially after the pandemic.

As society increasingly depends on electrical and electronics devices as well as equipment, more and more companies would depend on copper, causing its price to continually have an upward trajectory.

Here are a few things you should know before investing in copper:

The Details:

1. Just How Important is Copper?

Only iron ore and aluminum are more in demand than copper when it comes to commodities known as industrial or base metals.

Houses, Buildings and other infrastructure contain copper in their electrical wiring, air conditioning units, water pipes, appliances, and even furnishings.

The automobile industry is also hungry for copper. Gasoline-powered vehicles contain copper. Also, with the increasing demand for electric cars, more and more copper would be used by the automobile industry.

The pandemic has also brought more demand for copper. Hospitals are increasingly using copper in their buildings as well as tools because viruses and bacteria cannot live on copper.

Also, as previously stated, more and more people are being dependent on electronic and electrical devices for their daily living. Smartphones, iPads, laptops, and other electronic devices all use copper.

Electric drills, Electric saws, Vacuum cleaners, Microwaves, Electric stoves and other electric devices also heavily use copper. All of these devices and much more are all essential to daily living.

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2. The Global Copper Supply

Copper is an abundant material. Humans have only mined a small fraction of the world’s supply of copper. Also, copper is very recyclable. Once it has been mined and processed, it can be recycled from many sources.

However, there are mining issues regarding copper. Its deposits are only often 0.05% to one percent copper ore. Extracting such a tiny fraction of marketable ore requires an expensive process.

Adding to this problem have been the recent problems caused by the pandemic on copper. Many copper mines are just restarting operations again. There are also labor issues in copper mines. These two factors have hurt the mining and supply of copper.

By country, Chile is the largest producer of copper followed distantly by Peru. Chile also contains the most copper reserves. Fast industrializing countries Like China and India are heavy users of copper due to their infrastructure and industrial use.

China is also the world’s largest importer of copper. As the U.S. begins to heavily improve its infrastructure, copper will be in even more demand. Copper is also one of the heavily traded metals in the commodities and futures markets, which could mean price volatility.

Copper is also used as a hedge against inflation. This is the reason why you need to study the commodities and future markets, as well as the economic performance of heavy copper using countries such as China, India and the U.S. before investing in copper.

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3. Investing in Copper

There are many ways you can invest in copper. Here is a few of them:

3.1 Bullions: You can invest in physical copper by buying bars, coins or rounds. In these forms, they can be bought and sold just like any other physical product. Their prices will be based on what your buyer is willing to pay for them.

3.2 Stocks: Most of the stock investment in copper is in companies mining copper. The rules of investing apply: You must first be reasonably sure that the stock of the mining company in the future would perform well before you even consider investing in them.

3.3 Options: You can invest in copper by purchasing options on the future’s contracts. If the owner of an option decides that they don’t want to fulfill their contract, they can simply walk away and only lose the money they have already paid to purchase the contract.

Options have a strike price and if the value of the option rises above that, the options owners can exercise their option since they will be in the money and profit from the trade.

3.4 Futures: There are only a few exchanges where copper futures are traded. Two of them are the COMEX and the London Metal Exchange. Both of them are exchanges for trading metals.

Futures can be used to hedge against risk in the copper industry. However, you need to consider the substantial risk in investing in the futures market.

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4. Facts About Copper Investing

4.1 Mining Copper is Expensive and Could be Troublesome: For one, mining copper is capital intensive. Mining companies usually incur significant debt just to mine copper, which could lead to bankruptcy.

Also, mining by itself is a very controversial business. This is because mining damages and even destroys large geographic areas, leading to protests and corporate governance concerns.

If copper prices drop due to economic uncertainties and unpredictable events such as the pandemic, there would be a supply slowdown because companies won’t be able to afford to mine.

4.2 Copper is a frequently traded commodity: It is heavily used by many industries and serves as one of the indicators of economic health. But, there are only a few traditional investment vehicles for copper because of the limited number of companies in the business.

You can invest in the available ETF or exchange-traded notes as they are generally less risky. However, it is still important to be familiar with the copper market before you start investing.

4.3 The Demand for Copper Continues to Surge: Many investment companies especially after the pandemic are predicting that the demand for copper would skyrocket.

This is because copper, besides being a staple component of many electronics and electrical devices, have found new uses in many other industries who are now integrating electronics and electrical components in their product, to make them more advanced.

We have already seen the increased copper use in newer products such as electric vehicles and electric kitchen appliances, as well as personal electronic devices.

Copper can provide diversification in an investor’s portfolio, due to it being a staple component in many industries. Although it is scarce, it is lower in price than gold and silver. This provides you with a way to enter the semi-precious metals market with a more economical investment.

However, be warned that copper is not like investing in gold, which is a counter-cyclical metal. Copper, on the other hand, is cyclical; it moves with the broader market. This is why it is repeatedly advised that you study first the broader economic situation that is prevailing.

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5. Investing in Copper Recyclers

Scrap copper accounts for nearly 32% of all global copper supply. Scrap copper has been considered as the biggest source of copper on a global basis. For example, 50% of copper supplies for Europe are made out of scrap copper.

There is such a huge demand for scrap copper that even China, the largest refiner of scrap copper, still imports scrap copper from other countries.

This is the reason why besides investing in copper mining companies and copper investment instruments, there have been investors who have been investing in scrap copper recycling companies.

To see just how active or big is the global scrap copper recycling industry is, you can do a simple online search using the keywords: “copper recycling company”. This would prove to you that there are big companies involved in scrap copper recycling and processing.

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Final Words

Copper is such an important metal that it is used as a leading indicator of economic health. The more copper prices increase, the more the global economy also increases.

If you are an investor who wants to diversify your portfolios through commodities and futures investing, then copper would provide you with a financial opportunity due to the increased demand for it.

Investment companies predict that the price of copper would continue its upward trajectory, barring unforeseen events like another pandemic or a global recession. Being a commodity, its price volatility is associated with the commodities market.

Copper can give you a hedge against inflation, which is something that has been growing since 2021. If you want to invest in copper, there are a number of options which range from physical copper to the futures and options market. You can also invest in scrap copper recyclers.

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