Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
How to add copper exposure to your portfolio
Ole Hansen
Head of Commodity Strategy
Summary: Copper is called the "king of green metals" given its usage in multiple applications from batteries, electrical traction motors, solar PV technologies, wind turbines, and not least the electrical grid required to deal with the electrification of the world. In this we provide some examples of how to invest and trade copper, while highlighting some of the key drivers dictating the price.
Copper is called the "King of green metals" given its usage in multiple applications from batteries, electrical traction motors, solar PV technologies, wind turbines, and not least the electrical grid required to deal with the electrification of the world.
With that in mind, the reddish-orange metal, which has traded range-bound for almost a year, remains one of our favourite industrial metals. This is due to expected robust demand, not least from the aforementioned green transition, but also from the fact global inventories remain near a multi-year low, and due to the increasing risk of supply disruptions and production downgrades. Most of the major miners are dealing with rising labour and construction material costs, as well as lower ore grades as mines mature.
High Grade copper futures
How to invest in/trade copper:
Exchange-traded Funds (ETFs) or Commodities (ETCs): One way to gain exposure to copper is with copper ETFs (or ETCs). Copper ETFs are investment funds that either track the price of copper, mostly through an underlying investment in copper futures contracts, or a basket of major mining companies. Investing in ETFs provides exposure to the price movements of copper or copper miners without the need to directly trade futures contracts or own individual mining stocks. Just like equities, copper ETFs are traded on major stock exchanges, making them easily available.
Copper miners: Another, more indirect, way to gain exposure to copper prices is to invest in copper miners. It is worth noting that no pure copper miner exists; they always mine something else such as gold, silver, or other industrial metals. Investing in mining companies or ETFs that hold a basket of mining stocks provides exposure to copper prices. However, these investments carry operational risks and may exhibit higher volatility compared to copper itself. In the list, we have focused on some of the major miners involved with copper extraction. Compared to copper ETFs, as described above, your exposure to copper is less direct, but, especially if you buy copper mining stocks, you gain exposure to that company instead.
Copper futures and CFDs: A third way to invest in copper is through futures or CFDs, which is the most direct and also the most complex. Trading copper futures or contracts for difference (CFDs) involves higher risk due to leverage. While these products offer opportunities for speculation, they also require careful risk management to mitigate potential losses.
One High Grade copper futures contract has a contract size of 25,000 lbs, and based on a price at say USD 4.0 per pound, a contract’s value is around USD 100,000. As it is a leveraged product, the buyer or seller of such a futures contract has to provide less than USD 5,000 as collateral, leaving the owner of the position highly exposed to losses without proper risk management. CFDs track the futures price with the main difference being the ability to trade smaller quantities than the 25,000-pound futures contract.
Which factors drive copper?
Supply and demand dynamics: The fundamental principle of supply and demand plays a significant role in determining copper prices. Increased demand for copper, particularly from industries focusing on electrification, electronics, and automotive can drive prices up. The green transition has become the main driver behind copper demand growth, occurring at a time where miners are struggling with higher input prices from fuel, construction material and labour, as well as lower ore grades requiring more materials to be dug out of the ground to retrieve the copper. Also, rising regulatory and start-up costs for new projects lead to a prolonged period of mismatch between increasing demand and inelastic supply.
Weather and natural disasters: Extreme weather events like hurricanes, floods, and earthquakes are significantly disrupting copper mining and transportation infrastructure. This can affect supply negatively and in turn drive up prices.
Global economic conditions: Copper is widely used in construction and manufacturing, so its price is sensitive to changes in global economic conditions, not least in major economies, such as China and the United States.
Monetary policy: The policies of the US Federal Reserve significantly influence the price of commodities, including industrial metals such as copper. In 2023, rising interest rates drove up the funding cost of holding physical metals and led to a major round of industry destocking, but with rate cuts expected later this year, we may see a demand supportive restocking phase begin.
Investor sentiment and speculation: Like other commodities, copper prices can be influenced by investor sentiment and speculative trading in commodity markets. Factors such as geopolitical tensions, trade disputes, and macroeconomic policy decisions can affect investor perceptions and lead to price fluctuations.
Commodity articles:
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13 Mch 2024: Lack of catalyst pushes crude into tightening range
8 Mch 2024: Commodity weekly: Gold and silver steal the limelight
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6 Mch 2024: How to add gold exposure to your portfolio
6 Mch 2024: Video: What happened to the gold prices?
1 Mch 2024: Grains dip, cocoa soars, gold and oil see rays of strength: February’s commodity mix
29 Feb 2024: Podcast: Why speculative interest is important to understand
28 Feb 2024: Oil price stuck in neutral despite underlying strength
27 Feb 2024: Resilient gold market defies lower rate cut predictions
22 Feb 2024: Copper short squeeze fades ahead of key resistance
21 Feb 2024: Gold's resilience despite recent futures and ETF selling
20 Feb 2024: WTI crude eyes resistance amid improved signals
16 Feb 2024: Commodity weekly: Grains tumble; Industrial metals eye China boost
15 Feb 2024: US rate cut delay drives gold below $2000
13 Feb 2024: Video: What is driving Cocoa's sweet price
9 Feb 2024: Commodity weekly: Refined product strength lifts crude
9 Feb 2024: Podcast: Year of the metals
7 Feb 2024: Crude oil supported by tightening fuel outlook
6 Feb 2024: Gold and silver turn defensive on reduced Fed rate-cut optimism
2 Feb 2024: Commodity weekly: Tight supply adds fuel to uranium and cocoa rally
1 Feb 2024: Commodities: January performance and ETF flows
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18 Mch 2024: COT: Buying spreads from precious metals to copper and grains
11 Mch 2024: COT: Specs rush back into gold, elevated yen short in focus
4 Mch 2024: COT: Underinvested speculators fuel gold's latest surge
26 Feb 2024: COT: Record corn short, cocoa surge no longer supported by speculators
19 Feb 2024: COT: US inflation surprise drives broad selling of metals
5 Feb 2024:COT: Speculators chase false crude break; grain short extends further
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