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Is the coronavirus inspired drop a buying opportunity for Copper?


The financial markets have been eager to seize on any signs of good news in the shadow of the coronavirus outbreak, or Covid-19, and the last few days have seen a rally that has projected the Dow Jones and the DAX to all-time highs.

That’s not been the case for Copper, however, which was hit by a Covid-19 inspired fall on 14 January. From it’s high of $2.87 the metal slumped to $2.51 on 3 February and at the time of writing, sits at $2.58.

Chinese output as part of their self-imposed quarantine could go some way to explaining the drop in value but here at The Armchair Trader, we’d argue this metal is a vital building block to a greener future and with a lack of new mine investment and depleting reserves, the fall in price seems more than a little overblown.

What is copper used for?

Copper is an excellent conductor of electricity and electrical equipment, and electronics accounts for almost half of its overall usage. With the push towards a more sustainable future, however, this is likely to increase. Wind and solar energy sources require three to 15 times as much copper per unit of output as fossil fuel generation.

When it comes to transport, electric powered vehicles have replaced Copper with the more easily accessible aluminium where possible, but Copper’s heat and conductive properties are not easily replaced in its entirety. With most countries signed up to the international environmental agreement, electric vehicles will replace traditional petrol and diesel vehicles completely by 2050 in order to hit carbon neutral targets.

Construction is the other large industrial consumer of the metal and it’s in China where Copper is used in greater quantities than anywhere else in the world, with over three times the consumption of the US – the next largest global consumer. It is significant, and likely to be a considerable factor in driving down current prices.

Copper price at its lowest level since 2016

We don’t know what is in store for the coronavirus, or indeed the Chinese economy as a result of the outbreak, and we may not fully understand the scale of the problem for weeks to come.

Current stories suggest the Chinese have made a breakthrough with containment and the markets have reacted positively on the news.

This may be the end of Covid-19, or just the beginning. It’s too early to tell. But either way, Copper is a vital commodity as we strive to meet global environmental targets – and it’s price hasn’t been this low since 2016.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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