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Investing in Copper

Copper is one of the first minerals that was extracted from the ground and the metal that started the Bronze Age. It has come a long way since; instead of being turned into axes and blades these days it is more likely to become part of a computer chip or used to make cables, wires or pipes.

It is an excellent conductor of electricity and electrical equipment, and electronics accounts for almost half of all the copper’s overall usage. Construction and transport are two other big industrial users of the metal.

South America is particularly rich in copper. Chile’s state-owned company Codelco is the biggest copper miner on the planet, while BHP Billiton, an Australian mining company, operates the massive Escondida mine in the country.

Although Chile dominated the headlines over its miners being trapped 700 metres underground, the largest mines in Chile are actually open pits rather then deep ones. US-based Freeport-McMoran and the FTSE-listed Rio Tinto are two more key miners and any changes in their output, mine expansions or closures will affect prices.

The levels of copper that are mined from year to year tend to be fairly stable but in a world that is developing fast this is not enough to keep up with demand. Peru, Zambia, Russia and the US are the established mining regions but Mongolia is emerging as a new underexplored area and may change the balance over years to come.

The influence of China can not be overestimated when it comes to metals. With all of its industrial production the USA, the biggest user of copper in the Western world, still consumes only a quarter of the amount of copper used by China. Any big economic indicators, production cut news or decisions on import tariffs and taxes from China will have a profound effect on the market. Other big consumers are Japan, Germany and South Korea.

Because of China’s massive role in pushing up demand and the prices for base metals over the last decade, funds and speculators have become increasingly more interested in trading copper, be it in the form of futures, options or ETFs.

The three main exchanges for copper are the London Metal Exchange, the Comex division of the CME Group and the Shanghai Metal Exchange, while most banks with large commodities desks will also provide metals ETFs. Copper is also readily available to trade as a spread betting or CFD market.

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