Copper is not a metal that attracts much attention compared to other metals like steel and aluminium. But there are considerable quantities of it in every home and workplace. Because of its excellent conductivity and other properties, copper wires and pipes are used extensively in homes, offices and factories. Copper ranks third in world metal consumption, after steel and aluminium. Apart from electrical cables, copper is used in motor windings, in tubes for air conditioners, refrigerators and heat exchangers. Copper is also emerging as a popular trading commodity . This is usually done through copper futures contracts .
Copper production and supply
The biggest producers of copper are Chile, Peru, China, Democratic Republic of Congo, the USA and Australia. In 2018, Chile accounted for 5.8 million tonnes of the total world production of 21 million tonnes. India produces a modest amount of metal, accounting for around 2 percent of world production. It is mined in the states of Rajasthan, Jharkhand, Madhya Pradesh and Sikkim.
Copper demand and prices
High demand for this metal also drives copper futures investing. In 2018, the need for copper stood at 23.6 million tonnes, which is expected to grow to 30 million tonnes in 2027. The largest consumer of copper worldwide is China, which accounts for almost half of world copper consumption. The US, Japan and India are the other major importers.
Copper demand and prices are affected by a variety of factors. These include supply, economic growth and political developments. Recently, a worker’s strike in Chilean mines led to lower supply and increased prices. Higher economic growth leads to increased demand for copper and hence higher rates. A slowdown, on the other hand, will lead to lower demand.
Demand for copper is expected to get a boost from the growing use of renewable energy like wind and solar power, which need much more copper than conventional energy.
Since copper demand will be high in the future, copper futures investing seems to be a profitable venture. Trading in these futures is done on Indian commodity exchanges like the Multi-Commodity Exchange (MCX).
The most significant advantage of trading copper futures is the leverage. Margins in these futures are quite low and enable investors to take significant positions in the metal. The astronomical positions mean more opportunities to turn in a profit. There is, of course, the risk of large positions; if prices move in an unfavourable direction, the losses can be considerable.
Copper futures enable end users to hedge against price volatility. Speculators too can take advantage of price movements and turn in profits. They are also an option for investors who want to diversify their portfolio.
Futures contracts are available in lots of 1 metric tonne and 250 kg for investors on the MCX. Standard contracts are for February, April, June, August and November.
Pros and cons
Copper futures investing can be profitable for investors since demand will always continue to rise. However, like in all commodity markets , copper prices are volatile. Investors must consider domestic and international factors that could affect demand and cost. If you can keep abreast of the latest developments in the industry and keep a cool head on your shoulders, these can be very rewarding.
Frequently Asked Question
How do you trade copper futures?
Copper has a huge demand in the global market, and because of that, there is a wide prevailing market for copper futures. In India, you can invest in copper futures through MCX exchange.
You will need to open a commodity trading account with a broker to start trading in commodities,. Nowadays, account opening has become easy with the online method.
Copper futures shares the same characteristics of stock or currency futures. Once you purchase futures, the system becomes almost automatic until the futures is settled on expiry.
What unit is copper traded in?
The standard lot size for copper futures is one metric ton. Copper futures price in the Indian market reflects the international spot market price based on USD-INR exchange rate.
Is there a Copper ETF?
Yes, copper ETFs are available. Copper ETF tracks copper price movement, which moves in tandem with the price in the international market. Copper is a cyclical metal, means its price moves with economic cycles. The price increases when the economy is growing. Copper ETFs are one of the simple and less expensive ways for retail investors to invest in metal without risking owning the physical good in the futures market.
Is copper a commodity?
Yes, copper is a commodity.
Copper is an industrial metal that ranks third in total metal consumption after steel and aluminium. Because of high demand, copper enjoys high liquidity in the commodity market. A way to invest in copper is through copper futures or ETFs. If you are interested in trading copper futures, track the live price update in the exchange.
What is the best way to invest in copper?
Easy way to invest in copper is copper futures and exchange traded funds (ETF). Adding copper futures to your portfolio will help you diversify with a new asset class. If you are new to commodity trading, we suggest that you learn how to trade copper futures before investing.
Is investing in copper a good idea?
The copper price is lower than silver and gold, making it low risk investment. If you want to add commodity in your portfolio, this base metal is a good option to diversify your investment.