Investing in Copper through Futures Trading or Mining Companies

You can invest in copper either by trading in the futures markets or by putting your investment dollars in companies that specialize in mining and processing copper ore.

Investing in copper futures contracts

Like most of the other important industrial metals, there is a futures market available for copper trading. Most of this market is used by large industrial producers and consumers of the metal, although you can also use it for investment purposes. You have two copper contracts to choose from:

  • LME Copper (LME: CAD): The copper contract on the London Metal Exchange (LME) accounts for over 90 percent of total copper futures activity. It represents a lot size of 25 tons. Because the LME is located in the United Kingdom, it is regulated by the British Financial Services Authority (FSA).

  • COMEX Copper (COMEX: HG): This copper contract trades in the COMEX division of the New York Mercantile Exchange (NYMEX). COMEX copper, which trades during the current month and subsequent 23 calendar months, is traded both electronically and through the open outcry system. It represents 25,000 pounds of copper and trades under the symbol HG.

The following figure shows the rising price of copper futures on the COMEX division of the NYMEX from 2002 to 2006. You can see the demand for copper from China, India, and other advanced developing countries increasing, putting upward pressure on the price of copper. Of course, global economic downturns affect demand for commodities, such as copper.

Historical price levels of Copper on the COMEX from 2002 to 2006 (Dollars per Pound).
Historical price levels of Copper on the COMEX from 2002 to 2006 (Dollars per Pound).

Investing in copper companies

Another good investment vehicle is to get involved in companies that specialize in mining and processing copper ore. The companies listed here are leaders in their industry and are involved in all aspects of the copper supply chain. The only drawback of investing in companies is that you don’t get direct exposure to the price fluctuations of the metals. Still, they’re a good option if you don’t want to venture into the futures markets.

  • Phelps Dodge Corporation (NYSE: PD): Founded in 1834, Phelps Dodge is one of the oldest mining companies in the United States. It is also one of the largest manufacturers and producers of copper and copper products in the world. The company has a global presence in copper mining, with operations in the United States, South Africa, the Philippines, and Peru, among others. Because of its size and experience in the industry, Phelps Dodge is in a good position to capitalize from the increased demand for copper.

  • Freeport-McMoRan Inc. (NYSE: FCX): Freeport-McMoRan is one of the lowest cost producers of copper in the world. It has copper mining and smelting operations across the globe and has a significant presence in Indonesia and Papua New Guinea. The company specializes in the production of highly concentrated copper ore, which it then sells on the open market. FCX also has some operations in gold and silver.