How to Invest in Copper
Copper has been known to mankind for thousands of years and has been an important metal in human development since it has similar properties as some, more expensive, metals. Copper is similar to silver and gold in many ways as the red metal is very ductile, malleable and it can very easily conduct heat and electricity.
While copper may share some similarities with the precious metal group, copper\’s extremely cheap price causes the metal to have far more uses in industrial applications. Copper is used throughout wiring systems as well as in plumbing and circuit boards as well. In addition to copper wire and copper piping, the reddish-orange metal is used in power generation and transmission, heating and cooling systems, and telecommunications equipment, ensuring that the metal remains a crucial aspect of modern industrial life.
There are a wide number of options for those seeking exposure to copper. Investors have the option of buying up bars of copper or looking at some of the physically-backed ETPs that are currently on the market in some countries. Additionally, investors also have the option of buying futures contracts of the metal which are extremely liquid. There are a number of ETPs that allow investors to gain exposure to the red metal via futures either in a basket or exclusively. Lastly, investors have the option of buying any number of companies that are focused on the mining of the metal or by looking at an ETF that invests in copper mining companies.
Ways to Invest in Copper
There are 4 ways to invest in Copper: ETFs, Futures, Physical, and Stocks. Click on the tabs below to learn more about each alternative.
What are Copper ETFs?
There are multiple options for investors looking to bet on copper prices, and exchange-traded products offer a nice choice for investors interested in low maintenance. Copper is included in several broad-based metal ETFs and ETNs, generally along with other industrial metals such as tin, aluminum, and lead. There is also a pure play option; the iPath Dow Jones-UBS Copper ETN (JJC) is linked to an index that consists of futures contracts on copper. JJC delivers returns available through a futures-based strategy, to the ETN will not always match up perfectly with movement in spot prices. Also, it is worth considering that an investment in JJC exposes investors to the credit risk of the institution, as ETNs are debt instruments linked to the return of a particular asset class.
International investors may have more options for exposure to copper through ETFs; in London, ETF Securities offers a physically-backed product that could be appealing to investors frustrated with the nuances of contango and backwardation. There are also inverse and leveraged options for international investors.
There are also options for accessing copper prices indirectly through stocks of companies engaged in production of the metal, and there are multiple ETFs focusing on this corner of the materials market. The two primary options are the Global X Copper Miners ETF (COPX) and the First Trust ISE Global Copper Index Fund (CU). Both invest in stocks of companies who derive revenue from the sale of copper, though COPX offers more of a pure play on copper miners.
What are Copper Futures?
Copper futures are traded on the COMEX division of the NYMEX under the symbol HG. Each contract represents 25,000 pounds of copper; the basis for the contract is Grade 1 Electrolytic Copper Cathodes (full plate or cut) that conforms to the chemical and physical specifications for Grade 1 Electrolytic Copper Cathode as adopted by the American Society for Testing and Materials.
Trading in copper futures is conducted for delivery during the current calendar month, the next 23 calendar months, and any March, May, July, September, and December falling within a 60-month period beginning with the current month. Physical delivery may take place on any business day beginning on the first business day of the delivery month or any subsequent business day of the delivery month, but not later than the last business day of the current delivery month.
Copper futures are subject to NYMEX position limits.
Copper futures are also traded on the London Metal Exchange under the contract code CA. Copper futures represent 25 tonnes (with a tolerance of +/- 2%) of Grade A Copper conforming to BS EN 1978:1998 (Cu-CATH-1). LME copper futures contracts are priced in dollars and cents per pound, and clearable currencies include the U.S. dollar, pound, euro, and yen.
How to Buy Physical Copper
Investors seeking to gain exposure to copper can do so by simply buying the metal and storing it. Because copper is relatively cheap, however, storing copper of any material value may be challenging.
There have been instances of people hoarding currency to gain exposure to copper. Prior to 1982, pennies were made of 95% copper. That prompted some to melt down the currency when copper prices rose to the point that the materials used to make the coin were more valuable than the coin itself. Since 1982, pennies have been made from a mixture of zinc and copper. And under a law passed in 2006 it is illegal to melt coin currency, with violators facing up to five years in prison and $10,000 in fines.
There are also exchange-traded products offering exposure to physical copper. The ETF Securities Physical Copper ETF, which trades on the London Stock Exchange under the ticker PHCU, is backed by physical metal stored at London Metal Exchange warehouses, the ownership of which is evidenced by LME warrants or warehouse receipts. iShares and JPMorgan have sought regulatory approval to launch similar products on U.S. exchanges.
How to Buy Copper Stocks
One option for establishing exposure to copper involves purchasing stocks of companies engaged in mining and selling the metal. Because the profitability of these firms depends on market prices for the metal, these stocks have been known to demonstrate a strong positive correlation to spot prices. Moreover, investing in stocks avoids the potential complexities of a futures-based strategy.
Many companies that mine copper are also engaged in mining for gold, nickel, and other precious and industrial metals. There are, however, some pure play miners that focus primarily on copper:
- Jiangxi Copper Company
- Freeport Copper
- Equinox Minerals
- Lundin Mining Corp
- XStrata PLC
For a longer list of copper mining companies, see the holdings of the Global X Copper Miners ETF.
Copper in the News
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