Copper Boom: 3 Ways to Profit
Dear Rich Lifer,
Bank of America says the world is “running out of copper…”
The metal’s price is evidence.
Copper hit its highest level in more than a decade in April. And analysts see the price going even higher.
Due to copper’s high ductility and electrical conductivity, it’s the third most consumed industrial metal in the world, behind iron ore and aluminum, according to the US Geological Survey.
It can be found in everything from air conditioners, to televisions, plumbing, and cars. The red metal could also benefit from President Joe Biden’s infrastructure plan and the growing appetite for electric vehicles (EV).
As the U.S. economy starts up again and worldwide governments push for more green initiatives, demand for copper is set to soar — experts are already predicting EV demand will grow copper consumption by 250% by 2030.
How can you capitalize on the copper boom?
Unlike bonds or traditional stocks, however, commodities have different fundamental drivers that affect pricing.
We’ve got you covered. Below you’ll find the basics you need to know to get started investing in the red metal.
Copper Supply and Demand
Like most other commodities, copper supply is prone to disruptions in all sorts of ways: environmental events, worker strikes, economic fluctuations and so on.
Just last week, copper prices jumped after a union of remote workers for BHP’s Escondida and Spence copper mines in Chile walked off the job.
Therefore, it’s important to watch what’s happening in the world’s major copper-producing countries, like Chile, Peru and China.
The last few years have brought several disruptions to copper ore production, notably a strike at the Codelco’s Chuquicamata mine in 2019, one of the world’s largest copper mines, and of course 2020’s COVID-19 pandemic.
These events and others have all contributed to the bigger picture which is a worldwide copper shortage. While a copper deficit may not arrive for some time, copper’s long-term demand appears to be strong.
Over the past five years, copper prices roughly traded between $2 and $3 a pound, but prices broke above the $3 level in the fourth quarter of 2020 and haven’t looked back since.
Copper’s recent gains come from both a supply crunch and increasing demand. A lot of industrial commodities like copper are benefiting from the reflation trade in the pent-up demand for goods.
As we said earlier, copper is widely used in all kinds of applications. But housing, which is seeing strong demand, and all things related to working from home, are spiking demand.
Copper could also benefit from structural demand changes, specifically the move to the decarbonization of power systems and demand for EVs. Copper is required for wiring that makes EV motors run.
Biden’s infrastructure plan also includes EV-charging stations that would use copper. It’s tough to say how much of this will become law, but the general direction seems to be a move toward more copper usage.
Like with any metal, supply shortages can lead to jumps in price and the balance of supply and demand can be unpredictable. If you’re curious about investing in the red metal, you may want to get in sooner rather than later.
How to Invest in Copper
Here are three ways to start profiting from the copper boom today:
- Exchange-traded funds (ETFs)
Like with other commodities, exchange-traded funds (ETFs) are a convenient option.
For ETFs, look for funds focused on copper and copper mining companies.
- Mining stocks
Investing directly in the companies that dig up the stuff is another option. Copper mining stocks can be risky, but are one of the most direct routes to the market. If you’re not sure where to start looking, check out some of the largest companies… Freeport-McMoRan, Glencore, BHP and Rio Tinto are good names to start with.
- Futures contracts
Finally, copper futures contracts are another popular choice. In fact, futures contracts are a lower-risk option because they allow buyers and sellers to lock in the price at which they buy or sell an asset in the future.This can create a safety net effect when investing in the copper market.
Commodities can be a great way to diversify your portfolio.
Given the price volatility, we recommend keeping your position to 5% of your portfolio at most.
Also, stick to buying equities rather than the metal outright. It can take 12 to 18 months for a copper mine to come into production. Buying equities means you also reap any dividends a company pays out when demand rises.
As with any investment, take your time to research and do your due diligence before investing.
To a richer life,
The Rich Life Roadmap Team