Trading copper: An underdog commodity?
While trading copper and its price fluctuations may not make the headlines of the most popular financial news outlets, few analysts can deny the underlying strength of this commodity. Yes, copper does come third after gold and silver when it comes to value, but sometimes an underdog could hide interesting surprises.
Our blog aims to give you the opportunity to learn some useful information regarding trading copper and enable you to decide whether you want to explore this option.
Copper fundamentals
Copper is found in the free metallic state in nature. Archaeologists have found artefacts made out of copper in many regions across the world, with the oldest of them dating back to 8000 BC. During the Roman era, copper supply came from the island of Cyprus. The Statue of Liberty, one of the most popular US symbols, contains more than 170,000 lbs. of copper.
According to data published by the International Trade Administration of the US Department of Commerce, Chile is the largest producer of copper in the world, with almost one-third of the global share. The US and Indonesia come second and third in terms of production volume after Chile.
Use of copper in everyday life
Copper can be found in the typical’s home electrical wiring, plumbing, and home appliances, totaling about 400 pounds. The typical automobile has 60 pounds of copper. Copper is 100% recyclable with some experts suggesting that 80% of the copper that has been produced to date is still in use.
Metal alloys are created by the process of mixing different types of metals. Bronze and brass are two of the most well-known alloys that are made of copper. Copper is put to use in computers in order to improve the performance of microchips. Copper is used within these chips to assist in the transfer of both electrical and thermal signals. Copper is an excellent choice for use in electrical circuits due to its superior ability to conduct electricity without being overheated.
How does copper perform as a commodity in markets?
Copper’s price has been historically unstable. As the coronavirus pandemic started sweeping the world and governments imposed restrictions, its price fell to $2.2 per pound which was a 4-year low. However, the next months were positive for the commodity, with its price climbing and hitting a multi-year high on March 1st 2022, trading at $4.7 per pound.
Despite a turbulent period in November and December 2022, copper’s price rallied in January 2023, reaching $4.2 per pound on January 26th. The copper price has climbed by 8.3% in the last three months while it has gained 7.1% year to date according to statistics provided by Marketwatch.
Copper price forecasts
Market analysts speaking to CNBC stressed that global markets would likely be plagued by a copper deficit throughout 2023. This deficit could be exacerbated by increasingly challenging supply streams coming from South America as well as greater demand pressures.
However, other analysts suggest that prices have remained weak of late despite China's reopening from COVID-19 restrictions. Economists at the Institute of International Finance, speaking to Business Insider, said that “whatever is going on in China, there's no sign that the end of zero-COVID is boosting global growth, based on commodity prices. Oil prices never went up and copper prices are falling after the initial China reopening excitement fades. Global recession is coming.”
According to projections made by Goldman Sachs, the price of copper would hover at $9,750 per tonne in 2023, before increasing to an average of $12,000 per tonne in 2024. Economists at Goldman Sachs suggested that Chile will likely produce less copper from 2023 to 2025.
A report published by the Bank of America at the end of December showed that its commodity analysts are cautiously optimistic. In their report, they noted that “we maintain a cautious view into 2023, expecting prices to average $7,500/t ($3.40/lb) in the first quarter, before rallying to an average of $10,000/t ($4.53/lb) in Q423.”
There are ways to mitigate risk when trading
You probably have read that trading involves risk. Trading strategies do not always perform the way we want them to. If markets move towards the wrong direction, you may suffer considerable losses that could have an impact on your financial goals. Being a beginner trader, the chances of mistakes and miscalculations are increased.
If you want to avoid any unnecessary negative surprises, you should enhance your knowledge regarding trading and learn how to use the risk management tools at your disposal. Feeling confident about your actions and strategies should be one of your primary targets. By utilising risk management tools such as stop/loss orders and maximum drawdown, you make sure that you don’t jeopardise more funds than needed.
Study before trading
If you don’t feel confident using such tools, it would be best to study how they function and how they could help you achieve your goals. A vast number of seminars, webinars and e-books prepared by experts are available for you. Don’t lose the opportunity to learn more about the secrets of trading before you start using actual funds.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.
