Some folks may wonder whether to buy copper but are unsure of where to begin. Do you want to learn how to start investing in copper? This article will provide you some crucial information about the advantages and disadvantages of the market as well as investment dangers, which will be helpful for novices in copper investing.
Copper’s Characteristics
Copper is a widely used metal. It is extensively employed in a variety of industries, including as industry and infrastructure, power transmission, and vehicle manufacturing, thanks to its high ductility and electrical conductivity.
The creation of electronics, manufacturing, and residential building are some of the industries that influence copper’s demand as an industrial metal. When the economy is doing well, copper demand tends to rise, whereas when the economy is struggling, metal prices fall.
Additionally, copper often has a lower price than other metals like silver or gold, which offers it a pricing advantage in the metals market.
Copper has also contributed significantly to the new energy revolution during the last two years. According to experts, the demand for copper would increase fivefold by 2030 as a result of the green energy sector.
The Copper Market and the Major Elements
The following are the primary variables that influence copper’s current price:
- Copper supply and demand
- Global Macroeconomics
- Policies of major copper producing and consuming countries
- Modifications to the way copper-related sectors are developing
The market is most closely associated with the supply and demand connection among these. Let’s examine the link between supply and demand for investments in copper in more detail.
Supply and Demand
Demand Is Rising
Demand for copper has permanently increased due to the following factors:
- Many low-income countries have entered a new round of rapid growth. For those countries like India, with a population of more than 100 million and a per capita GDP of more than US$2,000 are expected to resume rapid growth after the epidemic is over. These economies have added more to a new cycle of rapid demand growth for copper.
- New demands brought about by industrial changes such as green new energy. Taking the electric vehicle industry as an example, sales of electric vehicles are expected to reach 33.6 million units by 2025, increasing copper demand by more than 150,000 tons.
In addition, the development of carbon-neutral new energy sources has also led to the upgrading of power grids around the world. New investment in China’s power grid in 2022 alone will increase copper demand by 120,000-180,000 metal tons.
Supply Is Constrained
Low new supply. Global capital investment on commodities has been significantly undeveloped during the last six years. Although copper mines and smelters have both continued to reduce their capital expenditures, the rate of new supply has not kept up. As a result, in the last few years, the capacity utilization rate for copper concentrate on a worldwide scale has surpassed the top bound of the range over the previous 10 years.
Uncertainty over supplies has grown as a result of the current confrontation in Russia and Ukraine. As a net exporter of refined copper, Russia is now subject to harsh economic penalties. As a result, Russia’s earlier export routes have been closed, causing uncertainty in the world’s supply of refined copper. The present instability of armed conflicts between two of the world’s top energy producers will increase the cost of producing refined copper on the supply side and reduce the ability of nations with less energy to produce refined copper.
Should I Invest in Copper?
Pros
- Multiple investment options: Copper exposure may be obtained by owning actual metals, purchasing shares of mining companies and ETFs, or engaging in derivative trading.
- Copper often costs less than other metals, including gold and silver, than many other metals.
- Industrial Applications: Copper, unlike other well-known metals like gold and silver, has industrial applications, which some people think give it a greater intrinsic worth.
Cons
- Copper’s value is often connected with economic success and is seen as a market bellwether, therefore anyone investing in metals as a hedge against weak market performance may choose to find an alternative.
- Purchasing shares in mining firms, one of the simplest methods to invest in copper, exposes you to extra risk in addition to providing exposure to the metal.
How to Invest in Copper
There are many ways to invest in copper, each with pros and cons. There are various ways to participate in the copper market. As with other commodities, exchange-traded funds (ETFs), futures and mining stocks are common ways to utilize copper.
The simplest method of doing so may be to invest in copper ETF shares or indirectly access the copper market by concentrating on funds that are focused on copper or copper mining firms.
Purchasing stock in mining businesses entitles you to dividend payments and the advantages of sound corporate governance. Shares of firms engaged in copper mining, development, and exploration are available for purchase, and investors may follow their progress as well as the ups and downs of copper prices.
Investors have a less hazardous option to engage in the market thanks to copper futures contracts. Your tastes and financial objectives will determine which investing strategy is ideal for you.
Is Investing in Copper Risky?
Like other investments, buying copper carries some risk.
If you invest in copper ETFs, there is a chance that the price of copper may decline or stay unchanged, making it impossible for you to make a profit.
You may be subject to various risks if you decide to invest using options or derivatives. Certain derivatives carry potentially limitless dangers. One must be aware of the enormous dangers associated with employing derivatives that include a lot of leverage or debt.
You must maintain the copper safe and secure if you invest in real copper. Weather conditions, inappropriate storage practices, loss, or theft are all potential causes of harm.
