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:
Table of Contents:
1. Just How Important is Copper?2. The Global Copper Supply
3. Investing in Copper
4. Facts About Copper Investing
5. Investing in Copper Recyclers
Final Words
The Details:
1. Just How Important is Copper?
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
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
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
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
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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Investing in Gold for the Long Run
Almost all people in the world know that gold is precious. In fact, even children at an early age are taught that gold is precious. One only needs to revisit their history lessons to remember that man has sought gold for ages.
Even with the proliferation of much more newer investment instruments like stocks, bonds, commodities, and even cryptocurrency & NFTs, many people still invest in gold.
But is investing in gold truly worth it? After all, none other than investment guru and the “Oracle of Omaha”, Warren Buffet, has publicly stated numerous times that he doesn’t think it’s worth investing in gold.
Can he be right? Is gold not worthy as an investment instrument? But apparently, gold as an investment instrument is more popular than ever. For example, in 2023, the number of Americans who think it’s worth investing in gold has doubled to 26%.
But who can fault them? Gold prices as of 2023 are near a 30 year high, especially as more and more people are convinced that gold is a hedge again inflation
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