In this series, we bust the jargon and explain a popular investing term or theme. Here it’s Doctor Copper.
Who or what is this?
This is a stock market colloquialism, not the name of a TV medic, or the holder of a PhD in metallurgy.
The price of copper is regarded as an indicator of the health of the global economy. When demand for this raw material is high pushing up its price, this suggests that the economy is healing and could be on its way back to vim and vigour.
But when the price of ‘the red metal’ falls, the diagnosis is that a slowdown could be approaching.
Doctor Copper: The price of copper is regarded as an indicator of the health of the global economy
Why is copper in the news?
Optimism has been growing that the ending of Covid lockdowns in China – which is the world’s largest consumer of the metal – will further boost demand at a time when there is a threat of a global shortage.
The price of copper on the London Metal Exchange has risen to over $9,300, up 11 per cent since the start of the year, having fallen to $7,544 in July 2022.
‘Provenance’ is also driving up the copper price. Most copper may be mined in Chile, Peru and China. But the metal is also produced in Russia and companies do not want to buy this.
The recent weakness of the dollar is another factor fuelling the copper price. Since most commodities are traded in dollars, any drop in the value of the currency tends to push up their prices.
Goldman Sachs and others are forecasting that the price could go above $11,000.
Why is copper so important?
Copper was the first metal used by man for jewellery and tools – as early as 8,700BC. The Ancient Egyptians saw copper as a disinfectant and hospitals today still appreciate its antimicrobial properties. Today the mining giant Anglo-American describes copper as ‘an essential part of human life’.
The company cites its use in car manufacturing (particularly electric vehicles), the construction industry, electronics and, yes, medicine.
Copper is the second best conductor of electricity (silver is the 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 could this demand BE?
The International Energy Agency estimates that the energy transition will account for 45 per cent of global demand by 2040. A particularly large amount of copper is required for the generation of offshore wind power, with a turbine needing about eight tonnes per megawatt.
And from electric vehicles?
A petrol car contains about 23kg of copper. The amounts in a hybrid and a plug-in are 40kg and 60kg, respectively.
Have shares in copper firms risen?
Definitely. Shares in Antofagasta, the Chilean mining company, have jumped 64 per cent over the past six months.
The broker Jefferies still rate the shares a ‘buy’ despite the recent surge.
Also rising are shares in the US group Freeport, which owns the giant Grasberg mine in Indonesia, and the Chinese Jiangxi Copper.
How can I take a bet on copper?
If you are ready for a gamble, the BlackRock Energy and Resources investment trust has stakes in groups like Glencore which mines, smelts and refines copper. Its shares are up 33 per cent over the past six months.
