How to Invest in Copper: 13 Actionable Ideas2015-06-24
Copper is arguably the most useful industrial metal. Aside from its most evident use in wires and plumbing, copper is a key element in auto parts such as brakes and cooling systems, and is even found in the Statue of Liberty, which features over 80 tons of copper in its brilliant structure.
It seems that today the only metal investors truly care about is gold; its volatile price swings and rapid price appreciation in recent years have pushed the metal into the limelight. But gold’s practical uses are extremely limited, making it more of a speculative investment. Copper on the other hand, is the perfect investment for those looking for a commodity tied to more than just volatility.
The use of copper dates back thousands of years and has been the primary element in a number of ancient (and modern) currencies. With its laundry list of practical uses in today’s society, it’s no wonder that commodity investors have warmed up to it in recent years.
Below, we outline 13 ways to play this industrial metal, with options reaching into every corner of the investing world.
Exchange-Traded Funds (ETFs)
As we have said a number of times, exchange-traded funds have had a major impact on commodity investing; they have taken asset classes that were once difficult to gain exposure to, and made them into simplified investments that anyone can add to their portfolio. There are a number of structures that commodity ETPs offer, including futures-based, physically-backed, and exposure to equities. As far as copper is concerned, this investment vehicle is still developing, with only limited options for the time being, but a number of issuers have plans for new copper funds to rapidly expand this sector in the months ahead [see also Crude Oil Crushed: Buy or Sell?].
- DJ-UBS Copper Total Return Sub-Index ETN (JJC): The most popular ETF for copper allocation, JJC offers exposure to futures contracts traded on the COMEX. Investors should note that an ETN carries the credit risk from its underlying issuer, but Barclay’s iPath, this fund’s issuer, is a trusted name in the investing world.
- Pure Beta Copper ETN (CUPM): Another iPath ETN, this product looks at copper investing differently than anything else available to investors; the fund maintains constant exposure to either one or two futures contracts, but unlike other ETPs, when it executes its automated roll process it does not have to buy front-month futures. Instead, the fund can purchase futures of any maturity, helping to nix some of the contango issues that futures-based ETPs carry.
- Copper Miners ETF (COPX): This equity fund from Global X features exposure to companies actively engaged in the copper mining industry. Top holdings include some of the biggest players in the copper space such as Southern Copper and Freeport-McMoRan. From a country standpoint, COPX’s exposure lies heavily in Canada, followed by the U.K. and the U.S. This may be a surprise given that the majority of the world’s copper is produced elsewhere, but consider that a number of major miners are not based in Chile or Peru, but simply have the majority of their business there.
- MSCI Chile Index Fund (ECH): This ETF offers exposure to the Chilean equity market, a popular but risky emerging economy in South America. Because Chile is home to such heavy copper reserves and also accounts for a large portion of the world’s copper production, this fund will make for an alternative way to play the metal without direct investment.
Investing in the equity side of the equation isn’t a pure play on the metal, but it can make for a number of interesting opportunities that other investment vehicles simply don’t offer. Equities that focus on metals will most often consist of mining, exploration, or refining companies that can offer a number of advantages over other options. A fair amount of these companies offer strong dividend options and high liquidity for traders of all kinds [see also Dividend Special: Top Companies In Every Major Commodity Sector].
- Freeport-McMoRan Copper (FCX): Freeport is the world’s largest publicly-traded copper miner with operations reaching all over the globe. As of the end of 2010, the firm had proven and probable reserves of over 120.5 billion pounds of copper.
- Southern Copper Corporation (SCCO): Southern copper is an investor favorite, often featuring an attractive dividend yield. The stock tends to be held mostly by insiders, which could mean that the company is fully confident in itself, but it could also turn off others who want a more individually owned security.
- Encore Wire Corporation (WIRE): Encore manufactures and sells copper wires and cables primarily in the U.S. Based out of Texas, the firm’s wire products are used in everything from photovoltaic cells to branch-circuit wiring.
- Lihua International, Inc. (LIWA): LIWA is more of a mid-cap play for investors. The company operates out of China and engages in the production of copper wire products.
- Sterlite Industries (India) Ltd. (SLT): Sterlite is something of a jack-of-all-trades, as it mines, smelts, and processes copper. Its mining operations take place all around world, though its major production comes from Australia and South Africa.
BONUS: Barrick Gold Corporation (ABX): Barrick is one of the world’s largest gold miners, so its appearance on this list may seem suspect. However, nearly 20% of its profits are derived from copper. This stock may be a good option for investors who want copper exposure, but also want to diversify exposure with a safe haven metal.
Believe it or not, there are actually plenty of options for owning physical copper or copper bullion, and we don’t just mean pennies. Though it may seem like an unconventional investment, considering that copper plumbing and wiring is a popular item for theft from construction sites, buying the physical metal may not be a bad idea. There is clearly a demand for the commodity and owning bullion is a guaranteed way to maintain safe and steady exposure [see also Three Reasons Why Gold Is Overvalued].
- Coins: There are a number of decorative copper coins that come in at a nice low cost to investors, much like the coins that can be bought for silver and gold. Also, pennies minted prior to 1982 consist of 95% copper, while those made after 1982 are 97.5% zinc. Note that melting U.S. currency is illegal, so there isn’t much of an appeal in the one cent coin.
- Bars: Copper bars come in all shapes and sizes including one pound and one kilo, allowing investors to make significant holdings in copper bullion without spending too much cash. For investors who truly believe in the long-term growth of copper prices, this may be the safest and best way to gain exposure.
Futures were the original method for obtaining exposure to commodities. These contracts can be difficult to understand and require a rather complex futures account, so they are not meant for the average investor. For those who fully understand the nuances of these contracts, futures can be one of the most powerful trading tools for an investor, as they offer exposure that, in some cases, can be found nowhere else in the market. Below, we list futures offered on the COMEX via the CME Group.
- Copper (HG): These contracts are quoted in U.S. cents per pound, and each contract is representative of 25,000 pounds of copper. For the time being, the most popular contract comes from the December maturity, but the futures extend all the way to 2016. These investments are also optionable.
- E-mini Copper (QC): For investors looking to invest in smaller contracts, or those who simply can’t afford to trade HG futures in high volumes, these futures represent 12,500 pounds of the reddish-brown metal, but be advised that they are not optionable.
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Disclosure: No positions at time of writing.