With the exception of one industrial metal that is in low supply yet is a necessary component of practically everything, commodity prices have begun to decline. This article will show you the best strategies to invest in copper.
As Russia and Ukraine’s peace negotiations advance, commodities are losing a little bit of value. The enthusiasm for speculation appears to be waning.
Oil is down, precious metals are down, and grains are down as well (though daily swings of $10 a barrel now seem to be the norm). Palladium is particularly down. Most commodities will increase once more, war or no war.
One industrial metal, though, is hardly down at all, which indicates that that specific bull market has a long way to go.
And for that reason, we think about copper today.
Copper is needed for everything, and supplies are low
The seventh-largest producer of copper in the world is Russia. It produces around 4% of the yearly supply (or about one million tonnes), and the majority of that copper is sent to China (with some into Europe).
Ukraine’s primary metal production consists of iron, steel, and manganese; it is a minor player in the copper market.
The war and the sanctions against Russia were generally believed to not have as significant an impact on the price of copper as they would have on other commodities; thus far, this has been proven to be true. The copper story’s key characters are located far away in China, Africa, and the Americas.
The largest copper consumer in the world is China. Despite the fact that it is also the third-largest producer in the world. With 54 percent of the global demand for copper, it is a net importer.
The second-largest market is Europe, which accounts for about 15% of demand. The Americas, particularly the US, follow with another 11% of demand. There are between 25 and 28 million tonnes of total annual demand (depending on whose research you follow).
Since copper costs around $10,000 per tonne, the market size is well over $250 billion. Please correct me if my math is incorrect (you won’t hesitate, I’m sure).
Chile is both the nation with the largest reserves and the largest production overall. There, with its relatively new left-leaning government, fears of resource nationalization have so far been unwarranted. It generates over 6 million tonnes annually, or 28% of the world’s supply.
The US comes in last, followed by its neighbor Peru (2,200 tonnes, or 13% of the global supply), China (1,700 tonnes, 8%), and the Democratic Republic of the Congo (1,300 tonnes, 7%). (1,200 tonnes, 5 percent ).
Almost all industries, including manufacturing, electricity generation, electronics, and transportation, use copper. Because of this, demand is frequently used as a gauge of the state of the economy. Approximately 65 percent of total demand is for electricity, 25 percent is for industrial, and 10 percent is for transportation.
The London Metal Exchange (LME), China, and worldwide visible inventory all have their lowest levels in the past four years (since before the pandemic), providing solid support for present prices.
What message does the copper chart convey?
The cost of copper follows. During the 2000s bull market, it experienced a significant rise. It crashed in 2008, recovered to a peak in 2011 (about $4.60/lb), then experienced a nine-year bear market during which it lost more than half of its value.
In 2016 and 2020, it successfully retested its lows around $2/lb. After the post-coronavirus comeback, it took off and reached new highs in 2021, after which it has been stabilizing near the new highs.
This is copper after 20 years:
And as you zoom in, you can see three years’ worth of copper prices, demonstrating how they have steadily risen since last year’s consolidation.
So, how do you invest?
Depending on your risk tolerance, there are a variety of strategies available, including futures, exchange-traded funds (ETFs), spread bets, stocks, and shares.
Even better, you can visit the scrapyard and purchase the metal directly. One of my brothers-in-law used to act in that way. But he’s strange.
The Copper ETF allows you to simply speculate on the price of copper without assuming any risk associated with specific companies or mining (LSE: COPA).
The miners come next. The Global X copper miners ETF, the most liquid form of which is listed in New York (NYSE: COPX), but there are other “subsidiaries” in London, denominated in dollars (LSE: COPX) and pound, is even a possibility for you if you don’t want specific company risk (LSE: COPG). Although you’ll wind up paying them through the back door, the latter is arguably the easiest strategy to avoid broker forex fees.
When it comes to mining firms, London has plenty of possibilities. The majors include Rio Tinto (LSE: RIO), Antofagasta, Anglo American, Glencore, and BHP Group (LSE: BLT) (LSE: ANTO).
Freeport-McMoran (NYSE: FCX), the second-largest producer in the world (after Chilean state-owned Codelco), which is listed in the US, should also likely be mentioned because, with the exception of Antofagasta, it is a purer play.
Depending on how much you ingest, there are lots of small- and mid-caps that might spice up your dinner or cause you indigestion. I’ll let you find those; the majority of them are probably listed in Canada and Australia, though there are also several on Aim, the junior market in London.