With all the emphasis on investing in gold given the yellow metal’s surge in recent months, it can be tempting to overlook its more industrial cousins.
Gold investing is all the rage, with the yellow metal surging as investors look to hedge themselves against disruption in the equity markets or inflation that could result from Trump’s tariff regime.
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“Many people expect strong growth [in copper demand] driven by the green energy transition, turning from typical combustion engines to electric vehicles, as the world moves away from fossil fuels towards more renewable power generation,” Duncan Hobbs, research director at Concord Resources, told MoneyWeek.
“Electricity demand is expected to increase about 169% through 2050,” says Steven Schoffstall, director, ETF product management at Sprott Asset Management. “As demand is expected to move higher, there are some headwinds to increasing supply at the same rate. Ore grades are declining and are a fraction of what they have been historically.”
Given copper’s unique physical properties (it is the best conductor of heat and electricity in industrial use), the copper market is often viewed as a bellwether for the global economy.
Why are copper prices rising?
The spot price of copper surged 4% on 24 September following a tragic accident at the Grasberg copper mine in Papua, Indonesia, the world’s second-largest copper mine. Two employees of Freeport-McMoRan (NYSE:FCX), which owns the mine, have died and a further five are missing following a mudslide.
Freeport-McMoRan has declared force majeure on Wednesday 24 September, warning customers that it may not be able to meet contracts. It has lowered its copper and gold production guidance for this quarter.
With copper supply already struggling to keep pace with demand, the development has come as a shock to the global copper market.
“Grasberg is one of the largest copper mines in the world, accounting for around 3% of global supply, which will now be removed from the market for an as yet unknown period of time,” said Steve Clayton, head of equity funds at Hargreaves Lansdown.
The resulting jump in copper prices has “put a flame under the prices of copper producers”, Clayton adds. Shares in Antofagasta (LON:ANTO) gained over 9% on 24 September.
“The will have to take stock of events and decide whether the knee-jerk was an over-reaction to a shock, or the start of more meaningful gains for the copper sector,” said Clayton.
Which factors impact copper prices?
According to Hobbs, there are three main influences on copper prices.
The first is the “fundamental status”: the balance between physical copper supply and demand. Naturally, if demand outstrips supply, this acts to increase copper prices, and vice versa.
The second factor is influenced by this and pertains to broader macroeconomic environments. We’ll explore this more below, but major macroeconomic news stories like the tariff toing and froing falls under this category.
“You can sometimes get a situation where the fundamental assessment of the supply and demand balance would lead you to expect prices to trade in one direction, but broader macroeconomic and political considerations push prices in another direction,” explains Hobbs. For that reason, he says, the fundamental balance has to be layered with the macroeconomic outlook.
The third factor influences short-term copper prices, over weeks and months rather than years and decades. That is financial positioning: effectively, a consideration of how copper market participants have deployed money.
If investors generally expect copper prices to rise in future, they will build long positions, often in futures markets. If the hypothesis is correct and copper prices rise, they will naturally want to take some profit. That can lead to short-term periods where the price of copper falls, even against a longer-term trend of rising prices.
Similar dynamics to this third effect also play out in equities markets.
How have tariffs impacted the copper price?
Donald Trump’s tariff regime has been another source of volatility for copper prices. After much speculation, copper imports into the US became subject to a 50% tariff from 1 August.
According to Alexandra Symeonidi, senior corporate credit and sustainability analyst at William Blair Investment Management, the copper tariff aims to “incentivise domestic industries and boost sector employment as well as limit [US] reliance on copper imports”.
Symeonidi explains that the US has become reliant on copper imports, which satisfy half of all US copper demand. “Most of these imports – around 90% – are in the form of refined copper, a segment where China maintains dominance, accounting for nearly half of the global refined copper supply,” she adds.
Copper prices plummeted 18% on 30 July, when the 50% tariff was announced. While the latest surge has seen copper prices recover, they are still far below the level at which copper traded prior to the announcement.
How to invest in copper
There are several ways to invest in copper. Many professional copper traders will buy and sell futures contracts; however, that’s not generally recommended for retail investors as it is risky and involves a degree of speculation.
You can easily gain exposure to copper spot price movements with an exchange-traded commodity (ETC), though. An ETC is like an ETF, but rather than an index it tracks the price of one particular commodity.
“These are ideal for investors seeking pure-play exposure to the metal itself, without the added exposure of mining company performance,” says Akoner.
One example is WisdomTree Copper (LON:COPA). This London-listed ETC tracks the dollar price of copper. In the year to 16 May COPA has gained a little over 13%.
You can also invest in copper mining ETFs. Like most ETFs these are bundles of stocks: the stocks will be those of copper mining companies.
The Sprott Copper Miners UCITS ETF (LON:COPP), for example, provides exposure to small-, mid- and large-cap copper miners.
“These funds tend to amplify movements in copper prices through equity exposure, potentially delivering higher returns (and risks) than the metal alone,” says Akoner.
Investors could also buy the shares of copper miners directly. Some major FTSE 100 companies like Antofagasta, Glencore (LON:GLEN) or Rio Tinto (LON:RIO) have large exposure to copper mining. Like copper mining ETFs buying these shares could amplify risks and returns compared to investing in copper ETCs (with less diversification to mitigate this risk and reward compared to buying a copper mining ETF).
“Finally, diversified commodity funds and investment trusts, such as BlackRock World Mining Trust (LON:BRWM) or JPM Natural Resources Fund can provide broader exposure,” says Akoner. “These vehicles typically hold positions across multiple metals and mining companies, including those focused on copper, making them a useful option for investors seeking a more balanced approach.”
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