By Jared Cummans
Copper is arguably the most useful of industrial metals, as it can be found in a number of household products. Aside from its most evident uses, in wiring and plumbing, copper is a key element in auto parts like brakes and cooling systems, and even the Statue of Liberty, whose brilliant structure is made from over 80 tons of copper.
It seems that today, the only metal investors truly care about is gold, as its volatile price swings and rapid price appreciation in recent years has pushed it into the limelight. But gold’s practical uses are extremely limited, making it more of a speculative investment than one in industry. Copper, on the other hand, is the perfect investment for those looking for a commodity tied to more than just volatility. (See also "25 Ways To Invest In Silver.")
The use of copper dates back thousands of years, as the metal has been the primary element in a number of ancient and modern currencies. But with its laundry list of practical uses in today’s society, its no wonder that commodity investors have warmed up to the metal in recent years. As is typical for industrial metals and minerals, the majority of copper production comes from emerging markets around the world, with Chile and China dominating. In fact, Chile has roughly 20% of the world’s proven copper reserves, making them the market movers for this metal. Peru and the U.S. are the next two biggest producers, adding one developed market in the mix.
The recent market volatility has put a fair amount of downward pressure on copper, with its prices plummeting all the way down to $3/pound levels. As one of the most popular commodity investments, a number of traders will be looking to make a play while copper is currently beaten-down. Below, we outline 13 ways to play this industrial metal, with options reaching into every corner of the investing world.
Exchange Traded Funds (ETFs)
As we have said a number of times, exchange-traded products have had a major impact on commodity investing, as they have taken asset classes that were once difficult to gain exposure to, and made them into simplified investments that anyone can add to their portfolios. There are a number of structures that commodity ETPs offer, including futures-based, physically-backed, and exposure to equities. As far as copper is concerned, this investment vehicle is still developing, with only limited options for the time being, but a number of issuers have plans for new copper funds to rapidly expand this sector in the months ahead.
1. DJ-UBS Copper Total Return Sub-Index ETN (JJC): The most popular ETF for copper allocation, JJC offers exposure to futures contracts traded on the COMEX. With an average daily volume topping 300,000 and assets over $120 million, this fund in itself is an effective trading tool. Investors should note that an ETN carries the credit risk from its underlying issuer, but Barclay’s iPath, the fund’s issuer, is a well trusted name in the investing world.
2. Pure Beta Copper ETN (CUPM): Another iPath ETN, this product looks at copper investing differently than anything else available to investors; the fund maintains constant exposure to either one or two futures contracts, but unlike other ETPs, when it executes its automated roll process it does not have to buy front month futures. Instead, the fund can purchase futures of any maturity, helping to nix some of the contango issues that futures-based ETPs carry.
3. Copper Miners ETF (COPX): This equity fund from Global X features exposure to companies who actively engaged in the copper mining industry. Top holdings include some of the biggest players in the copper space, like Southern Copper and Freeport-McMoRan. From a country standpoint, COPX’s exposure lies heavily in Canada, followed by the U.K. and the US. This may be a surprise given that the majority of the world’s copper is produced elsewhere, but consider that a number of major miners are not based in Chile or Peru, but simply have the majority of their business there.
4. MSCI Chile Index Fund (ECH): This ETF offers exposure to the Chilean equity market, a popular but risky emerging economy in South America. Because Chile is home to such heavy copper reserves and also accounts for a large portion of the world’s copper production, this fund will make for an alternative way to play the metal without direct investment.
Investing the equity side of the equation isn’t a pure play on the metal, but it can make for a number of interesting opportunities that other investment vehicles simply don’t offer. Equities that focus on metals will most often consist of mining, exploration, or refining companies which can offer a number of advantages over other options. A fair amount of these companies offer strong dividend options and high liquidity for traders of all kinds.
5. Freeport-McMoRan Copper (FCX): Freeport is the world’s largest publicly traded copper miner with operations reaching all over the globe. As of the end of 2010, the firm had proven and probable reserves of over 120.5 billion pounds of copper. If that were to all be harvested at a price of $3/LB, the reserves would be worth over $350 billion in revenues. The stock changes hands over 20 million times a day and pays out a great dividend yield of 2.9%.
6. Southern Copper Corporation (SCCO): Southern copper is an investor favorite, as evidenced by its market cap of nearly $22 billion and high trading volumes. The likely attraction comes from its robust dividend yield of 9.4%; a figure too strong for value investors to pass up. The stock is 80% held by insiders, which could mean that the company is fully confident in itself, but it could also turn off others who want a more individually-owned security.
7. Encore Wire Corporation (WIRE): Encore manufactures and sells copper wires and cables primarily in the US. Based out of Texas, the firm’s wire products are used in everything from photovoltaic cells to branch-circuit wiring. The cleverly-name stock has over $500 million in assets and trades roughly 125,000 shares each day.
8. Lihua International, Inc. (LIWA): The smallest stock on the list, LIWA comes in with a market cap of $127 million, making it more of a mid-cap play for investors interested in the beefed up risk/return profile that smaller companies tend to offer. The company operates out of China and engages in the production of copper wire products.
9. Sterlite Industries (India) Ltd. (SLT): Sterlite is something of a jack-of-all-trades, as it mines, smelts, and processes copper. Its mining operations take place all through out the world though its major production comes from Australia and South Africa. Another large cap product, with AUM of $31 billion, SLT offers investors a meager dividend yield just under 1% to add a small but important income stream to your portfolio.
BONUS: Barrick Gold Corporation (ABX): Barrick is one of the world’s largest gold miners, so its appearance on this list may seem suspect. But consider that nearly 20% of its profits are derived from copper, and it makes more sense. This stock may be a good option for investors who want copper exposure, but want to diversify exposure with a safe haven metal.
Believe it or not, there are actually plenty of options for owning physical copper or copper bullion. No, not just pennies. Though it may seem like an unconventional investment, considering that copper plumbing and wiring is a popular item for theft from construction sites, buying the physical metal may not be a bad idea. There is clearly a demand for the commodity and owning bullion is a guaranteed way to maintain safe and steady exposure.
10. Coins: There are a number of decorative copper coins that come in at a nice low cost to investors, much like the coins that can be bought for silver and gold. Also, pennies minted prior to 1982 consist of 95% copper, those made after 1982 are 97.5% zinc. Note that melting U.S. currency is illegal, so there isn’t much of an appeal in the one cent coin.
11. Bars: Copper bars come in all shapes and sizes including one pound and one kilo, allowing investors to make significant holdings in copper bullion without spending too much cash. For investors who truly believe in the long-term growth of copper prices, this may be the safest and best way to gain exposure.
Futures were the original method for obtaining exposure to commodities. These contracts can be difficult to understand and require a rather complex futures account, so they are not meant for the average investor. For those who fully understand the nuances of these contracts, futures can be one of the most powerful trading tools for an investor, as they offer exposure that, in some cases, can be found nowhere else in the market. The following futures are offered on the COMEX via the CME Group:
12. Copper (HG): These contracts are quoted in U.S. cents per pound, and each contract is representative of 25,000 pounds of copper. For the time being, the most popular contract comes from the December maturity, but the futures extend all the way to 2016. These investments are also optionable.
13. E-mini Copper (QC): For investors looking to invest in smaller contracts, or those who simply can’t afford to trade HG futures in high volumes, these futures represent 12,500 pounds of the reddish-brown metal, but be advised that they are not optionable.
Disclosure: No positions at time of writing.