Is copper worth investing in? Here are seven basic copper facts investors interested in the red metal should know before entering the market.
What is copper? The metal’s relationship with human development is longstanding. From being used in plumbing in ancient Egyptian civilizations to being an essential component of power generation, copper has been an “electric” metal for millennia.
Considered a tertiary commodity compared to the shinier appeal of gold and silver, copper is often the third choice for metals-focused investors during economic uncertainty. Today, copper is the third most used metal in the world and plays a pivotal role in all major economies and in the developing world.
Here are some basic copper facts for investors looking to get into the market.
1. What is copper?
One of many base metals, copper’s most distinctive quality is its reddish-orange color. On the periodic table, it has the symbol Cu and is found in the same group as precious metals silver (Ag) and gold (Au). These metals were among the first elements discovered, as all three occur naturally in elemental form.
In pure form, copper is soft with very high electrical and thermal conductivity. These characteristics mean it is popular for use in alloys that are vital in many industries, including manufacturing and construction.
2. What is copper used for?
Construction is the largest application for copper worldwide. It is estimated that nearly half of all copper is used by the construction industry. A home can contain on average 439 pounds of copper in wiring, pipes and appliances, while a car can contain 50 pounds of copper in its motor, connectors and brakes.
Because homes are so reliant on the semi-precious metal, copper prices are tied to the health of housing markets. The second largest market for copper is the electrical and electronics space due to the metal’s excellent conductivity. This arena now includes electric vehicles.
3. Who uses the most copper?
In terms of consumption, China has taken the top spot several times, including in 2017, when the Asian nation was the largest consumer of refined copper at 11.8 million tonnes (MT).
The country also ranks number one in a 2017 list of copper ore and concentrate importers, with Japan and Spain following behind. Refined copper imports in 2017 were the same story, though the United States and Italy took the second and third spots, respectively.
4. Who sets the price of copper?
What is copper priced at and who decides? The price of copper is set by the free market. Producers, suppliers and customers balance extraction, production and distribution costs with demand. Two common exchanges where copper is traded are the London Metal Exchange and the COMEX.
Copper is heavily consumed, but it is also heavily traded, which can lead to price volatility as large orders come in and out of the market. As with many commodities, copper is also traded on the futures market, which gives investors and consumers the opportunity to hedge against price changes.
5. Who produces the most copper?
Chile, at 5.8 million metric tons (MT), is the world’s largest copper miner, producing more than double the amount of the next highest producer, Peru, at 2.4 million MT. Chile’s Codelco is the top copper-producing company, but since it is state owned, it is not available for investors to put money into.
The next largest copper miners are Freeport-McMoRan (NYSE:FCX) and Glencore (LSE:GLEN,OTC Pink:GLCNF), which produced 1.729 million MT and 1.453 million MT in 2018, respectively. Also producing more than 1 million MT per year was BHP Billiton (ASX:BHP,NYSE:BHP,LSE:BLT), which delivered over 1.245 million MT in 2018. Other key players in the global copper market include Southern Copper (NYSE:SCCO), Rio Tinto (LSE:RIO,NYSE:RIO,ASX:RIO) and Anglo American (LSE:AAL,OTCQX:AAUKF).
6. How to invest in copper
For investors looking to enter the copper market, there are a number of options available:
- Physical copper: The time to obtain physical copper from pennies has long since passed, but there are still options for investors to own physical copper or copper bullion through bars or collectible coins. While storing these large materials can prove challenging, owning physical copper might be the cheapest option for investors.
- Stocks: To access copper prices more directly, investors can purchase shares of companies engaged in mining the metal. These stocks demonstrate a strong correlation to spot prices.
- ETFs: Alternatively, investors have the option of accessing the copper market indirectly by looking at exchange-traded funds (ETFs) focused on the red metal or at companies that mine the metal.
- Futures: As mentioned, copper futures are a popular way to hedge risk while getting exposure to the metal. There are a few exchanges where trading copper futures is possible, including the London Metal Exchange.
7. Is copper worth investing in?
For the time being, copper prices remain somewhat contingent on trade talks between China and the United States, with optimism towards a possible deal having recently boosted demand and pricing.
Analysts in the space are currently concerned with copper’s supply, as a dwindling pipeline of projects in production has some worried about a potential shortage. However, that sentiment is commonly accompanied by the notion that a deficit is still a ways off; in the meantime, copper’s presence in the electric vehicle revolution is set to continue pushing demand for the foreseeable future.
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Securities Disclosure: I, Olivia Da Silva, hold no direct investment interest in any company mentioned in this article.