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How to Invest in Copper (Updated 2023)
Mar. 22, 2023 01:40PM PSTCopper Investing
New to copper investing? Learn the basics of supply and demand and how to get exposure to this important base metal.
Often termed Dr. Copper, the red metal has long been held up as a key indicator of global economic health.
Copper is one of the most highly followed base metals, and its high ductility and electrical conductivity make it the third most consumed industrial metal in the world, behind iron ore and aluminum, as per the US Geological Survey.
Given its attributes, copper is often used for electrical purposes such as power transmission and generation. And like its base metal sibling nickel, it has a major role in the electric vehicle revolution, with experts expecting consumption of copper to jump five-fold by 2030 due to demand from the green energy market.
Read on to get an idea of the supply and demand dynamics that move the copper price, as well as how to invest.
What factors impact copper supply and demand?
Copper supply is prone to disruptions in various capacities: environmental events, worker strikes, economic fluctuations and so on. For that reason, it's important to keep an eye on what’s happening in the world’s major copper producers, such as Chile, Peru and China. Global events like the COVID-19 pandemic can also play a role in market dynamics.
Looking into the future, some experts have big picture concerns for copper output, with some predicting that prices for the red metal will remain high well into the future as supply struggles to keep up with demand.
Indeed, copper had a breakout year in 2021, reaching an all-time high above US$10,700 per metric ton on the back of higher demand expectations. In 2022, the red metal repeated that performance to reach another record-high of US$11,067 per metric ton on expectations that electric vehicle and renewable energy applications will translate into higher demand.
Russia's war in Ukraine has had an impact on both demand and supply, as both energy prices and inflation have been on the rise. Russia is one of the top copper-producing countries. “This had the twin effect of slowing both demand and supply growth, which helped to keep the copper market relatively tight,” Dan Smith, head of research at Amalgamated Metal Trading, told the Investing News Network at the end of 2022. “We have seen some big swings in prices this year, but with so much uncertainty about the war in Ukraine and the potential for a ban on Russian metal, this was to be expected.”
As with any metal, supply shortages can lead to jumps in price, assuming demand remains intact or rises. The balancing act of supply and demand is fickle, and investors who are curious about copper may want to get involved sooner rather than later.
What are the ways to invest in copper?
There are a variety of ways one can get involved in the copper market. As with other commodities, exchange-traded funds (ETFs), futures and mining stocks are common methods of capitalizing on copper.
In the case of a copper ETF, investors are able to access the copper market indirectly by looking at funds focused on copper or copper-mining companies. Meanwhile, copper futures contracts give investors a chance to take part in the market in a lower-risk fashion — according to InvestingAnswers, “(Futures) allow buyers and sellers to ‘lock in’ the price at which they buy or sell an asset in the future.” This creates a bit of a safety net effect for those in the market.
Lastly, there are copper stocks, which can be risky, but are one of the most direct routes to the market. Investors can buy shares of firms involved in copper mining, development and exploration, and ride the ebb and flow of both these companies’ performance and the copper price. Typically more advanced companies are less risky compared to juniors.
Some of the largest copper-mining companies are Freeport-McMoRan (NYSE:FCX), Glencore (LSE:GLEN,OTC Pink:GLCNF), BHP (ASX:BHP,NYSE:BHP,LSE:BLT) and Rio Tinto (LSE:RIO,NYSE:RIO,ASX:RIO). For other ideas on copper stocks, check out our lists of the top-performing companies listed on the TSX and TSXV.
This is an updated version of an article first published by the Investing News Network in 2020.
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Securities Disclosure: I, Melissa Pistilli, 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.
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