Commodity Trading In Copper, Opportunities for Capital Growth
With base metals assisting the surge in economic growth in Asia, commodity trading in copper is one way of benefiting from this notable trend in natural resources.
As the largest mining companies in the world express confidence in the future global demand for their metal products to fuel infrastructure growth, the climate is well set for potential gains from trading copper.
Even when there are the occasional corrections, as a commodity trader you can take advantage by going short on copper and look out for the main trend to re-establish itself.
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Combining important fundamental resource information and news with your favoured trading system is the most likely way to succeed in achieving your goals. Why is copper so important?
Copper is a key base metal which plays an important role in the big technology advances, it is a very efficient conductor of electricity and heat, it is a flexible and durable metal which is resistant to corrosion.
So its main applications are in telecommunications, electricity and power generation infrastructure, heating and air conditioning, roofing and plumbing and electrical appliances.
There is a strong correlation between a rise in per capita GDP and a rise in per capita demand for copper. The BRIC (Brazil, Russia, India, China) economies are striving to catch up with Japan, USA and Europe, and so the long term trend is for increased demand for copper.
And Marius Kloppers, CEO of the world’s largest mining company, BHP Billiton sees strong demand from China for all the main commodities in its product line, including copper, continuing for decades.
World Copper Mining Production
Over the 10 years to 2006 world copper mining production increased 33% from 11.48 million tonnes (mt) to 15.22 mt, according to the World Bureau of Metal Statistics (WBMS).
There is a very strong Latin American bias to world copper mining production, with Chile and Peru representing no less than 42% of mining production in 2006.
Over the decade to 2006, Chile increased copper mining production by 58%, while significantly the USA saw a production decline of 37% over the same period, and China an increased output of 52%.
One notable development was the 2,750% surge in copper output from 0.4 mt to 11.4 mt in Vietnam over this ten year period.
Smelter Production World smelted copper production increased by 20% over the decade to 2006 from 10.78 mt to 12.88 mt, with China seeing a 174% increase to 1.8 mt while the USA saw a fall of 71% to 0.5 mt and Chile an increase of 13% to 1.56 mt over the same period.
Copper comes in one of two ores, either copper oxide or copper sulphide, with the former being crushed and the copper extracted using acid.
Refined Copper Production
Over the decade to 2006, world production of refined copper increased 28% from 13.6 mt to 17.4 mt, and again this figure hides some notable variation.
While China increased production by 154% to 2.99 mt, and India by a huge 841% from 70,000 tonnes to 0.66 mt, the USA saw a 49% decline to 2.47 mt.
Where is copper consumed?
Consumption of copper can be divided roughly between two areas, namely the BRIC economies which took up about 30% of 2006 consumption of 17.06 mt., and the USA, Japan and Europe.
Japan saw a decline of 11% in consumption of the metal over the decade to 2006, while the US saw an even bigger fall of 23% in the use of refined copper.
Of the BRIC nations, China was by far the major consumer, taking 70% of the amount consumed by this group, and over 21% of the world total, according to WBMS.
The overall picture is one of the emerging economies offsetting the fall in demand from the more developed countries, and this trend is set to continue going forward.
Stocks of ores, concentrates, blister and anode copper fell 54% during the 10 years between 1997 and 2006 from 470,000 tonnes to 216,000 tonnes.
World commercial stocks of refined copper are made up of Metal Exchange stocks and holdings by various countries. Stocks of the metal held at the LME, Comex and Shanghai Metal Exchange fell from 445,000 to 253,000 tonnes.
Supplies held by various countries, however, barely moved over the 10 years to 2006. So overall the combined commercial stock of the metal fell by 22% over the decade. Looking forward to the future of commodity trading in copper.
With the passage of time the demand and supply dynamics for copper or any metal or commodity will change given the large number of variables in the real economy.
Alternatively, there are some base metal ETF’s available which either track a commodity index containing industrial metals or which rolls over copper futures as they expire.
Some of you will follow closely the trend indicators in your chosen commodity trading system while others may wish to combine that approach with up to date news on copper data.
Given the trends established over the ten years to 2006, the current dynamics in copper, together with reports and comments from the largest mining companies in the world, it appears that base metals look positive going forward and that commodity trading in copper will be well rewarded.
Lead Tin Aluminium Nickel Zinc
Return to Base Metals from Commodity Trading in Copper
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