Without a question, gold and silver come to mind first when people consider trading or investing in metals, before they ever consider investing in copper. There are many Factors Influencing Copper Trading
Copper, the third-most-consumed industrial metal in the world1, plays a significant role in our lives even though it lacks the status or allure of gleaming precious metals. This post will discuss this useful commodity and explain how to invest in copper.
A highly tradable commodity is copper. Since copper priced in US dollars, the value of the dollar has an impact on copper’s cost. Along with a number of other options, investing in copper is becoming more popular.
Copper prices often perform well when emerging markets are expanding because demand driven by building and construction, as discussed in our primer on copper.
Technical analysis and fundamental analysis are both possible components of copper trading methods. A worldwide commodity with numerous important industrial applications and a strong relationship to economic expansion is copper. Hedgers and speculators frequently utilise copper trading to guard against or profit from future price changes. Copper is a common choice within the spectrum of commodity trading because it may accessed by both individuals and institutions.
HOW DOES COPPER TRADING WORK AND WHY TRADE COPPER
Trading in copper has the benefit of being accessible. There are many ways to trade copper, including futures, options, stocks, and CFDs. Additionally, you can expose yourself to copper through exchange-traded funds (ETFs), such as the United States Copper Index Fund (CPER) or the JJCB (iPath Series B Bloomberg Copper Subindex Total Return ETN).
Soft and malleable copper has qualities similar to those of gold and silver. The majority of its demand derived from the manufacture of electrical goods, transportation machinery, and buildings. It trades in huge quantities, which is excellent for traders since it can result in lower spreads and possibly cleaner chart patterns. It is a strong conductor of electricity and heat and has a variety of industrial uses.
Copper price changes largely influenced by demand from developing market economies like China and India. These countries’ high copper demand during periods of economic expansion contributes to copper’s price increase. In contrast, as demand for copper declines during economic downturns, copper prices also tend to decline. When trading copper, investors need be mindful of this dynamic.
Many copper traders base their trading decisions on technical and/or fundamental research, which aids in predicting whether the price of copper will climb or decline.
A trader might purchase or sell copper in an effort to make money off price changes once they are sure in their forecast. A trading strategy can assist a trader in managing risk in this way, identifying buy and sell signals in the market, and setting realistic take-profit and stop-loss levels with the goal of achieving favourable risk-to-reward ratios.
Factors Influencing Copper Trading
According to the figure below, copper prices often rise when the US Dollar declines and vice versa. This suggests that, like many other metals, copper prices negatively correlated to the US Dollar. It’s crucial to remember that although there is a strong correlation between the two, the relationship is not one-to-one (delta 1).
Due to the fact that copper valued in USD, the US Dollar has impact on copper prices. For instance, a buyer will pay less of his or her home currency to buy a certain amount of copper when the value of the dollar declines. The price of the good (copper) decreases as a result. This usually results in a spike in demand and a subsequent increase in the price of copper.
Copper refined by heating the metal to flush out impurities. This process uses a lot of energy and makes up a sizable amount of the entire cost. Copper price trajectories resemble those of oil prices (see chart below).
Having said that, the fact that copper and oil prices influenced by many of the same variables may help to maintain the long-standing good association. Whatever the specifics, it is obvious that there is a relationship between copper and oil, which could offer important information about the copper market. As demand for renewable energy sources rises, the historical price relationship between copper and oil may be disrupted.
Using Copper as a Gauge of Global Growth
Industrial expansion and, by extension, total economic growth are frequently associated with copper. Copper is increasingly significantly used in infrastructure, manufacturing, and building, all of which play significant roles in economic growth. Since a rise in demand typically results in an increase in price, and vice versa, copper consumption (demand) tends to reflect in copper pricing. Since it is the metal most frequently employed in expanding economies in both established economies and emerging market economies, copper is generally regarded as the king of base metals.
As a general guideline for trading copper, the following laws of supply and demand are seen:
More supply compared to less demand
Lower supply Greater demand
China has a significant impact on the supply and demand for copper. China is the world’s largest copper consumer overall. Despite having its own mines, China needs extra supplies, which are obtained from other significant copper-producing nations. This is why it’s crucial to take into account while dealing copper the Chinese economy. If China keeps growing at its current rate, copper demand should remain stable (see chart below). The fact that China is committed to long-term self-sufficiency could have an impact on future supply and demand dynamics.
Costs of Manufacturing and Supply of Copper
The main region for copper mining is South America, which has a significant impact on copper’s pricing. Price implications may be caused by differences in production costs, copper quality, and supply shortages. This brings up country-specific risk, which can have an impact on supply owing to political unrest or labor-related problems.
Copper workers in Chile, the world’s largest copper producer, said in the middle of 2018 that they would go on strike if their increased salary demands weren’t met. Because of the potential supply constraint, this greatly distorted copper prices, sending them surging to multi-year highs at the time (see chart below).
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