Copper futures hit highs unheard of in a decade last month, and are up 90 percent year over year. The good news for retail investors is that there are cheap, if risky, ways to jump on the copper wagon.
The government; Company promise to reduce CO2 emissions; a copper buying frenzy in China; and an infrastructure plan for the United States bodes well for the prospect of a copper boom.
Copper is used in a wide variety of consumers and industries Applications. It's included in everything from electrical cables to batteries, pipes, motors, home appliances, heating and cooling systems, jewelry, and much more.
American job plan
President Joe Biden proposed a plan to repair and improve national infrastructure in late March. He pushed that plan forward in an address to a joint congressional session earlier this week.
Under Bidens American job planAbout $ 2 trillion would be spent improving the country's infrastructure and promoting green energy. Many of these improvements would involve the use of copper.
For example, part of the plan includes $ 105 billion for the Department of Transportation to carry out repairs to buses, rail vehicles, and train stations. In addition, the plan provides $ 174 billion to help American manufacturers make electric cars, batteries, and charging stations. Other parts of the plan would require even more copper.
Electric cars are increasing the demand for copper
Some automobile manufacturers have committed to production fully electric vehicles within five years. Around one hundred electric cars are expected to come onto the market by the end of 2024. With the rise of electric vehicles, the demand for copper is likely to grow rapidly.
Electric cars use copper in batteries. In addition, copper is used in Motors, wiring, coolers, connectors, brakes and bearings.
China is a buyer
About half of the copper mined worldwide is bought from China. As a result, Chinese companies use copper to manufacture refrigerators, microwave ovens and washing machines, for example.
Like most industries, the pandemic had a negative impact on copper prices and fewer goods were produced. However, China is snapping back as much copper as possible. As a result, the outlook for demand and, with it, copper prices are increasing.
Maike Group, a Chinese metal trading company, recently forecast that copper prices will hit an all-time high within a year. According to Maike Group, China's commitment to clean energy will be a major contributor to this price hike.
Once in a 100-year-old event?
"The price of copper will reach a record high in the coming year," said He Jinbi, founder of the Maike Group, in a written reply to Reuters. "The market will gradually accept it because as the global consumer market recovers, there will be copper shortages in both the European and American markets."
One reason for the optimism in copper prices is the pandemic-induced reduction in mining and copper reserves. Copper is therefore in short supply. However, an expected acceleration in demand is also a factor.
"With this global transition to electrification, copper is passing through a unique, hundred-year-old linchpin," said Gianni CopperBank Resources' Kovacevic told Investing News Network. "The Green New Deal, and beyond that, the restimulation of the global economy, which is now well over $ 10 trillion – they all help copper."
To make a lot of money – or to lose it
So it looks like the demand for copper is rising dramatically. This is great, but how can you make money from it?
First, understand that you are really investing in copper production, not copper. Copper does not have the intrinsic value of diamonds or gold. You only make money out of copper if your company puts it up for sale.
Second, you make money when there is a tight supply and high demand for your product. That is the case with copper.
The easiest way to invest is to buy shares in a copper company. That usually means a copper mining company. Mining stocks are usually cheap and trade in the penny range. However, they are often volatile.
Some investors approach mining stock investments the same way they approach a roulette table. The catchphrase is "never bet what you can't afford to lose".
Lots of influences
If you decide to bet on a mining company, you should conduct extensive research taking into account the company's financial stability, current production and the location of the mines. Mining in some parts of the world is not encouraged. A mining official described violent protests in a Peruvian mine as "anti-mining terrorism".
Mining stocks are subject to natural and market forces. There are also external forces. For example, in many countries governments want a larger share of copper profits. Last week, Chili and Zambia proposed additional fees for copper companies. It is also the front runner in the Peruvian presidential election Yonhy Lescano, says he wants more mining revenue to stay in the country.
Regardless of outside forces, most analysts see a bright future for copper. RBC Capital Markets recently raised its copper price estimate from $ 3.25 to $ 3.50 an ounce other analysts.
A safer bet
A couple of coppers EFTs offer a broader investment. This diversification spreads the investment risk.
It's always exciting to catch a wave of investment. However, a balanced and diversified portfolio offers the greatest stability.
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