Did you know copper is one of the most useful natural resources on Earth?
The red-orange metal is flexible, durable and it doesn’t easily corrode. It’s used in nearly every major industry in the world, including transportation, engineering, machinery, electrical, construction, automotive, computers — you name it.
Because of its practicality, copper is a worldwide commodity, and its price is often considered a reliable indicator of the global economy’s health. Nevertheless, copper doesn’t get the same attention as its precious metal peers: gold, silver, platinum and palladium.
Yet there are a number of reasons investors should be careful not to overlook the commonly dismissed red metal.
Copper and an Asian Invasion
Most of the global demand for copper comes not from the U.S. or Europe, but from developing nations with improving standards of living and infrastructure projects, particularly in Asia.
China — the world’s number one copper consumer — has pledged to spend at least $585 billion on upcoming national infrastructure projects, and India plans to shell out more than $500 billion by 2015. In total, Asia (apart from Japan) stands to spend roughly $1.4 trillion on infrastructure projects in just a few years.
This trend will continue into the next decade as China urbanizes more than 100 million people in the coming years, which means more infrastructure like electric grids.
The Supply Report
With demand for copper a non-issue, potential investors need to consider supply, which looks significantly different than it did just a few years ago. Copper is a finite resource — how much is left remains to be seen.
Not long ago, there was great concern over the scarcity of new copper mines. But by March 2013, fears dissipated when it was predicted that “copper supply will outpace demand by between 100,000 and 200,000 metric tons in 2013.”
As a result, the copper market is bracing for its first surplus in four years. Some are warning there will be a short drop in prices in the near future, especially as concern over the Federal Reserve’s continued stimulus tapering.
On the flip side, market bulls point out that copper is too important of a metal to see a dramatic fall for long. They call attention to mining companies around the world facing delays or cancellations of numerous projects due to rapidly increasing production costs. Consequently, they believe a slowdown in supply may stabilize copper prices despite this year’s surplus.
As you can see, there are a number of factors that contribute to the market value of copper, but one thing both bulls and bears agree on is that investing in copper is a good long-term play.
Demand — spurred along by ever-increasing industrial use and the emerging economic growth in Asia, as well as limited supply — makes copper an excellent way to safely invest in bullion.
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