INVESTMENT EXPLAINED: What you need to know about Doctor Copper – the price of the ‘red metal’ is seen as an indicator of the health of the global economy
In this series, we break the jargon and explain a popular investing term or topic. This is Doctor Copper.
Who or what is it?
It’s a colloquialism for the stock market, not the name of a TV doctor or a metallurgist with a doctorate.
The price of copper is considered an indicator of the health of the global economy. When demand for this commodity is high, driving its price up, it suggests the economy is recovering and may be on its way back to life and vigor.
But when the price of the “red metal” drops, the diagnosis is that a downturn could be approaching.
Doctor Copper: The price of copper is seen as an indicator of the health of the global economy
Why is copper making headlines?
Optimism is growing that the end 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% since the start of the year, after falling to $7,544 in July 2022.
“Provenance” also drives up the price of copper. 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 weakness of the dollar is another factor that is fueling the price of copper. Since most commodities are traded in dollars, any decline in the value of the currency tends to drive up their prices.
Goldman Sachs and others predict that the price could rise above $11,000.
Why is copper so important?
Copper was the first metal used by man for jewelry and tools – as early as 8700 BC. The ancient Egyptians viewed copper as a disinfectant, and hospitals still value its antimicrobial properties today. Today, the Anglo-American mining giant describes copper as “an essential element of human life”.
The company cites its use in automotive manufacturing (especially electric vehicles), the construction industry, electronics and, yes, medicine.
Copper is the second best conductor of electricity (silver is number one) and therefore crucial to the energy transition as the world shifts from fossil fuels to renewables to meet net zero goals.
How big could this demand be?
The International Energy Agency estimates that the energy transition will account for 45% of global demand by 2040. A particularly large amount of copper is needed for offshore wind power generation, with one turbine requiring around eight tonnes per megawatt .
And electric vehicles?
A gasoline-powered car contains about 23 kg of copper. The quantities in a hybrid and a plug-in are 40 kg and 60 kg respectively.
Have copper company stocks risen?
Absolutely. Shares of Antofagasta, the Chilean mining company, have jumped 64% in the past six months.
Broker Jefferies is still pricing the stock as a “buy” despite the recent surge.
The shares of the American group Freeport, owner of the giant Grasberg mine in Indonesia, and the Chinese Jiangxi Copper are also progressing.
How can I take a bet on copper?
If you’re willing to bet, investment trust BlackRock Energy and Resources owns stakes in groups like Glencore which mines, smelts and refines copper. Its shares are up 33% in the past six months.