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INVESTING EXPLAINED: What you need to know about Doctor Copper – the price of ‘red metal’ is considered an indicator of the health of the global economy
In this series, we break down the jargon and explain a popular investment term or theme. Here’s Dr. Copper.
Who or what is this?
This is a colloquialism in the stock market, not the name of a TV medic or the holder of a PhD in metallurgy.
The price of copper is considered an indicator of the health of the global economy. When the demand for this commodity is high and the price rises, it suggests that the economy is healing and moving towards vitality.
But when the price of “the red metal” drops, the diagnosis is that a slowdown could be coming.
Doctor Copper: The price of copper is considered an indicator of the health of the global economy
Why is copper in the news?
Optimism is growing that the end of Covid lockdowns in China – the world’s largest consumer of the metal – will further boost demand at a time when a global shortage is looming.
The price of copper on the London Metal Exchange has surged to more than $9,300, up 11 percent since the start of the year, after falling to $7,544 in July 2022.
‘Provenance’ is also driving up the copper price. Most copper can be mined in Chile, Peru and China. But the metal is also produced in Russia and companies do not want to buy it.
The recent dollar weakness is another factor fueling copper prices. Since most commodities are traded in dollars, any fall in the currency’s value tends to drive up their prices.
Goldman Sachs and others are predicting the price could break above $11,000.
Why is copper so important?
Copper was the first metal used by man for jewelry and tools – as far back as 8700 BC. The ancient Egyptians saw copper as a disinfectant, and hospitals still value its antimicrobial properties. Today, the Anglo-American mining giant describes copper as “an essential part of human life.”
The company cites its use in automotive manufacturing (particularly electric vehicles), the construction industry, electronics, and, yes, medicine.
Copper is the second best conductor of electricity (silver is number one) and thus crucial to the energy transition as the world shifts from fossil fuels to renewables to meet net zero targets.
How big can this question be?
The International Energy Agency estimates that the energy transition will account for 45 percent of global demand by 2040. A large amount of copper is needed, especially for the generation of wind energy at sea, with a turbine requiring about eight tons per megawatt.
And of electric vehicles?
A petrol car contains about 23 kg of copper. The quantities in a hybrid and a plug-in are 40 kg and 60 kg respectively.
Have stocks in copper firms risen?
Certainly. Shares of Antofagasta, the Chilean mining company, are up 64 percent over the past six months.
Broker Jefferies still rates the stock a “buy” despite the recent uptick.
The shares of the American group Freeport, owner of the gigantic Grasberg mine in Indonesia, and the Chinese Jiangxi Copper are also rising.
How can I bet on copper?
If you’re ready for a gamble, the BlackRock Energy and Resources Investment Trust has interests in groups like Glencore that mine, smelt and refine copper. Shares are up 33 percent over the past six months.