Copper: how to join the party

Copper is booming. The world’s third most used metal has been around for millennia, digging civilisation out of the Stone Age. But now it is powering the energy transition.

Prices are up a fifth this year. Desire for the red metal was behind BHP’s aborted £38.6bn bid for rival miner Anglo American. Hedge fund manager Pierre Andurand reckons prices could almost quadruple to $40,000 a tonne over the next few years. 

There are more grassroots signs of increasing value too: theft of copper cable is up 20 per cent on last year in southern England, reports the Hampshire and Isle of Wight police.

Copper’s industrial applications in power grids, factories and solar panels make it a proxy for economic growth and explain its “Dr Copper” sobriquet. The greening economy should boost demand, which is set to almost double by 2035, reckons S&P Global Commodity Insights. Electric vehicles use four times as much copper as their analogue peers, for instance.

The future is not all shiny. China, the biggest consumer, front-ended a lot of metal buying last year. The country is not about to embark on a building frenzy regardless of what one thinks about Beijing’s rescue plan for its sickly real estate sector.

Political risk stalks the sector. Copper’s role in green products is not always matched by keenness for its extraction. Panama shut down Cobre Panama, one of the world’s biggest and newest copper mines late last year over environmental concerns. Peruvian mines have also suffered closures and slowdowns from public protests.

Retail investors siding with the bulls have several ways to gain exposure. First up is to make like BHP — on a smaller scale — and buy shares in miners. Industry behemoth, Codelco of Chile, is in state hands. But listed miners include Australia’s BHP, which should surpass Codelco in output this year. Listed in the US are Freeport-McMoRan and Southern Copper and in the UK, Antofagasta and Glencore. Also engaged in copper are Canadian headquartered Teck Resources and China’s Zijin Mining. 

No miner is always free of controversy, so diversifying makes sense. Several UK compliant ETFs pool together copper miners to enable investors to go down this route. 

Those wanting to bypass the picks and shovels have a couple of options. You can physically buy copper, just as you can buy gold ingots. But this is not for the average retail investor. For one, lot sizes on the LME are 25 tonnes which would set you back a cool $275,000 or so at current prices — and take up your entire living room. 

Similarly, exchange traded commodity (ETCs) investing in physical copper have largely fallen out of favour. The cost of storage, security and insurance, all much bigger as a proportion of cost than is the case with gold, made these an unattractive (and hence now largely non-existent) option.

Instead, look to funds investing in futures contracts such as those offered by WisdomTree. As with other commodities, these come with storage fees baked in: typically in a rising market, longer dated prices will plot an upwards curve, and track higher further out in part to cover those costs. 

Currently, the reverse applies: the CME futures curve is in backwardation, meaning further out contracts are cheaper.

Uber bulls have the option to buy into leveraged funds, whacking up the returns to two or, if desired, three times those yielded by the benchmark index, while more bearish peers can go short, again via funds. Either way, this metal of the future is not just for institutional investors; those with fewer coppers can plug and play too.