Why Copper is so important as Econimic Indicator
Copper is surely one of the most important metal. Here you will find Everything You Need to Know About it
Copper is one of the most important metals in the world. Every day, it is directly and indirectly used by billions of people around the world. For example, when you switch on your electricity, you have used copper because it is the one that is used in transmission lines. Similarly, when you make a phone call, you indirectly use copper because it is available inside the phones. Therefore, because of this, copper is often viewed as a barometer of the world economic growth. If the economy does well, it means that the demand for it will be high, which will lead to higher prices.
This year, the opposite of this has been happening. Indications are that the economic growth is a bit sluggish. In fact, all the leading authorities on economic growth have hinted that the economy will weaken this year. Christine Lagarde of IMF has said that she will lower the forecast later this week. At the same time, the price of copper has been on an upward trend. YTD, the price has jumped by more than 10%. The reason for this is that investors are optimistic that the US will hammer a deal with China. Such a deal is important because China is the biggest consumer of copper in the world.
How to invest on it
To invest in copper, there are two main ways you can do this. First, you can either buy or short copper futures, which are listed in leading boards such as CBOE and CME. Second, you can either buy or short copper producers. The biggest producers in the world are Codelco, Freeport McMoran, BHP Billiton, Rio Tinto, and Anglo American. Since these are public companies, you can buy them if you believe that the price will move up. You can also short them if you believe that the price will move downwards.
To become a good copper trader, it is important to understand its fundamentals. This means understanding the demand and supply dynamics. On the supply side, most of the world’s copper comes from countries like Chile, Peru, China, United States, Congo, Australia, and Zambia. The biggest mine is known as Escondida in Chile. Understanding these sources will help you predict the price in future. For example, in 2017, a strike in the Escondida mine led to the price of copper to move up. Every year, these countries produce more than 18 million metric tons, with the supply increasing by almost 1 million tons per year.
Most of the copper produced is consumed in China, which is the second biggest economy. This demand has increased with the launch of the China’s Belt and Road (BRI) initiative. It could also rise in the United States, if the country decides to launch the $1 trillion infrastructure project. Other top consumers are countries like Japan, South Korea, and those in Europe. Another leading driver for the copper demand is the rise in electric vehicles. These cars have more copper than that found in combustion engine vehicles. Further, the fact that more people are moving from poverty is a sign that the demand will continue to rise.