Investing in the shares of companies involved in mining, processing and trading copper offers exposure to a metal set to play a pivotal role in the transition to clean energy and net zero emissions by .
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According to Statista, copper also boasts the third largest market by value globally among its fellow commodities, behind only gold and aluminium.
However, as with other metals, copper prices can be volatile and are highly dependent on the health of the wider economy. And overexposure to a single commodity via share investments in that sector can add to, rather than reduce, the risk profile of an investment portfolio.
To help investors navigate the options on offer, we take a closer look at investing in companies working in the copper sector.
Other companies and funds operate in this sector, but each of the recommendations for this feature has been suggested for us by an expert investment professional. Remember, that investing in individual stocks comes with no guarantees and that share prices can fall as well as rise.
(Note that copper is priced in US dollars. For example, we quote the price per tonne as ranging from $4,600 to $11,300. The sterling equivalents using the November $ to £ exchange rate are £3,740 and £9,820.)
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Copper is in high demand due to its excellent thermal and electrical conductivity, resistance to corrosion and malleability.
Some of the main industrial applications for copper include:
Looking at demand by end-user, equipment and construction account for 60% of copper consumed globally, as shown in the chart below:
Figure 1: Copper consumed worldwide by end use,However, clean energy technologies are forecast to become the fastest-growing segment moving forward, with the International Energy (IEA) predicting that their share will increase to 40% of demand by .
Copper prices more than doubled during the pandemic, rising from a low of $4,600 per tonne in early to a high of almost $11,300 in . One of the key drivers was increased demand from China, with deteriorating trade relations with the US prompting its stockpiling of copper supplies.
However, a surplus in copper supply has proved a headwind for copper prices over the last year, driving down the price to around $8,000 per tonne, as shown in the chart below:
Figure 2: Historical daily copper prices in US dollars per tonne, from toRemember, past performance is no guarantee of future returns.
Investors looking to potentially make a return from copper do so for a number of reasons in our opinion. For example, a key attraction of investing in companies concerned with the mining or production of copper is the metal's importance in a range of industrial processes.
Russ Mould, investment director at AJ Bell, comments: 'The nickname 'Dr Copper' comes from the metal's reputation as a useful guide to global economic health. Copper's malleability, conductivity and ductility means it is used by many industries, ranging from automotive manufacturing to consumer electricals to construction.'
The demand for copper is potentially set to grow significantly in the next few decades, primarily driven by the expansion of clean energy technologies and associated improvements in the electricity infrastructure.
Jason Hollands, managing director of Bestinvest, says: 'There is structural long-term demand for copper as a very efficient conductor of electricity and key component in electric vehicles and renewable energy infrastructure including hydroelectricity, wind turbines and solar panels.
'It's estimated that renewable energy systems use more than five times more copper than traditional energy plants, and considerably more copper is used in electric vehicles than a conventional petrol or diesel car.'
The chart below illustrates the higher requirement for copper (and other strategic metals) in an electric vehicle relative to a petrol or diesel car:
Figure 3: Metals content of electric vehicles and conventional cars in kilograms per vehicleAs a result, S&P Global forecasts that copper demand is projected to grow from its current level of 25 million metric tons (MMt) today to a record high of 50 MMt by . Given that copper is a finite resource, this could lead to a shortage of copper and push up prices.
Copper is also actively traded on commodities markets, providing investors with the opportunity to add exposure without having to buy the asset in physical form.
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One of the key drawbacks of investing in companies associated with copper is the price volatility of the metal itself, which increases the potential for significant losses as share prices also fluctuate. Macro-economic factors such as inflation and interest rates can also have a considerable impact on price.
Mr Hollands says: 'Like many other commodities, copper prices are both highly volatile and very sensitive to the economic outlook, especially in China, given its role as the world's largest manufacturing hub. Investing directly in copper is therefore not suitable for the risk-averse.'
Mr Mould comments: 'If the economy is doing well, demand for copper is likely to be strong. Equally, the opposite applies, as can be seen from the price swoons of to , and .
'However, demand is just one part of the equation. Supply must also be considered, and this can be subject to mine development, local weather and accidents, as well as funding and also local geopolitical developments.
'Investors also need to keep an eye on the cost of production. This can be subject to local issues such as power prices, fuel availability and staff, as well as the supply of water.'
One way to invest indirectly is to consider buying shares in companies that mine, refine and trade copper as the prices of mining company shares typically correlate to metal prices. Investing in a mining company provides the opportunity for capital growth if the share price rises, along with income in the form of potential dividends should a company make payments along those lines to shareholders.
Mr Hollands points to copper mining equities returning 99% over the last five years, compared to 42% for the Bloomberg Copper index (in pounds sterling). Returns from copper mining companies also comfortably beat global equity returns of 65% (based on the MSCI World Index).
He adds: 'Mining companies are operationally leveraged, meaning that even modest increases in copper prices can magnify their profitability.'
Some of the largest global copper mining companies include:
Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.
Funds aggregate sums of money from investors to be managed on their behalf. Funds may be actively-managed (where the manager aims to beat the benchmark by stock-picking) or passively-managed (where the fund tracks an index using computer algorithms).
Passive funds usually charge annual management fees of around 0.1-0.2% compared to 0.5%-1.0% for actively-managed funds.
In terms of copper-based investments, options include:
Mr Hollands comments: 'Options to invest in copper as a pure play are relatively limited for retail investors. One way to invest is via an exchange-traded commodity that tracks copper prices, such as the WisdomTree Copper ETC (which aims to replicate the Bloomberg Copper Sub Total Return Index via a basket of copper futures).
'Alternatively, an indirect option is investing in the shares of copper mining companies such as the Global X Copper Miners UCITS ETF which tracks the Solactive Copper Miners Total Return Index (comprising the 42 largest listed copper miners globally).'
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The clean energy transition is likely to support longer-term demand for copper as a key metal in the shift to renewable energy. However, continued weakness in world manufacturing output and a global economic slowdown could take their toll on demand over the next few years.
That said, demand is only one side of the price equation. According to the recent S&P Global Commodity Insights report, copper prices are forecast to remain around the $8,600 to $9,100 level for the next two years due to a supply surplus.
Thereafter, it forecasts that demand is likely to exceed supply, which could potentially have a positive impact on prices and thus on the value of the shares of companies involved in the sector.
However, it's worth noting that any investment in metals such as copper should form only one part of a balanced and diversified portfolio. As a rule-of-thumb, commodities should not represent more than 5% of an overall portfolio.
Melissa Pistilli has been reporting on the markets and educating investors since . She has covered a wide variety of industries in the investment space including mining, cannabis, tech and pharmaceuticals. She helps to educate investors about opportunities in a variety of growth markets. Melissa holds a bachelor's degree in English education as well as a master's degree in the teaching of writing, both from Humboldt State University, California.
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