Copper futures hit highs not seen in a decade last month and are up 90 percent over last year. The good news for small investors is that there are cheap, though risky, ways to jump on the copper bandwagon.
The government; business pledges to reduce carbon emissions; a copper buying spree by China; and an infrastructure plan for the United States all bode well for the prospect of a copper boom.
Copper is used in a vast array of consumer and industrial applications. It can be found in everything from electrical wiring to batteries, pipes, motors, household appliances, heating and cooling systems, jewelry, and many more.
American Jobs Plan
President Joe Biden proposed a plan to repair and improve the nation’s infrastructure at the end of March. He pushed that plan again in an address to a joint session of Congress this week.
Under Biden’s American Jobs Plan, about $2 trillion would be spent to improve the nation’s infrastructure and boost green energy. Much of those improvements would involve the use of copper.
For example, one part of the plan includes $105 billion for the Department of Transportation to make repairs on buses, rail cars, and stations. In addition, the plan seeks $174 billion to help American manufactures make electric cars, batteries, and charging stations. Other parts of the plan would require even more copper.
Electric Cars Rev Up Copper Demand
Some automobile manufacturers have committed to producing all-electric vehicles within five years. About One hundred electric cars are set to be on the market by the end of 2024. With the increase in electric vehicles, demand for copper is expected to increase rapidly.
Electric cars use copper in batteries. In addition, copper is used in motors, wiring, radiators, connectors, brakes, and bearings.
China Is a Buyer
About half of the copper mined in the world is bought by China. Subsequently, Chinese companies use copper to manufacture things such as refrigerators, microwave ovens, and washing machines.
Like most industries, the pandemic had a negative impact on copper prices, and fewer goods were produced. However, China is again grabbing as much copper as it can. As a result, prospects for demand are increasing and so are copper prices.
Maike Group, a Chinese metal trading firm, recently predicted copper prices will climb to an all-time high within a year. China’s commitment to clean energy will be a major factor in that price increase, according to Maike Group.
Once in a 100-year Event?
“The price of copper will hit a record high in the coming year,” He Jinbi, Maike Group founder said in a written response to Reuters. “The market will gradually accept it, because with the recovery of the global consumption market there will also be a shortage of copper in the European and American markets.”
Part of the reason for the optimism on copper prices is the pandemic-induced reduction in mining and copper reserves. As a result, copper is in short supply. However, an expected acceleration in demand is also a factor.
“Copper is going through a once-in-a-hundred-year pivot with this global transition to electrification,” Gianni Kovacevic of CopperBank Resources told Investing News Network. “The Green New Deal and on top of that the restimulation of the global economy, which is now well in excess of US $10 trillion dollars — they all help copper.”
A Lot of Money To Be Made – Or Lost
So, it looks like the demand for copper is going to increase dramatically. That’s great, but how do you make money from that?
Firstly, understand that you are really investing in copper production, not copper. Copper does not have the intrinsic value of diamonds or gold. You are only making money in copper if your company is producing it for sale.
Secondly, you make money when there is a short supply and high demand for your product. That is the case with copper.
The simplest way to invest is to buy stock in a copper company. That usually means a copper mining company. Mining stocks are usually cheap, trading in the penny range. However, they are often volatile.
Some investors approach mining stock investments the same way they might approach a roulette table. The catchphrase is: “never bet what you can’t afford to lose”.
If you decide to wager on a mining company, you should do exhaustive research taking into account the company’s financial stability, current production, and location of mines. Mining in some parts of the world is not welcome. One mining official labeled violent protests at one Peruvian mine “anti-mining terrorism”.
Mining stocks are subject to forces of nature and market forces. In addition, there are external forces. As an example, the governments in many countries want a larger share of copper profits. Last week Chili and Zambia proposed additional fees on copper companies. In addition, the frontrunner in Peru’s presidential election, Yonhy Lescano, says he wants more mining revenues to stay in the country.
Regardless of external forces, most analysts see a bright future for copper. RBC Capital Markets recently raised its price estimate of copper from $3.25 to $3.50 an ounce along with other analysts.
A Safer Bet
A few copper EFTs offer a more diversified investment. That diversification spreads the investment risk.
It is always exciting to catch an investing wave. However, a balanced and diversified portfolio provides the greatest stability.
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