Copper: the Ugly Metal that Trades So Beautifully

“Thieves Cut Down 360 Foot Tower To Steal Copper.” This headline, from Tennessee, came across the news service during my morning research today. Thieves going to extreme lengths to steal this common metal? Increases in metal thefts can signal an increase in demand leading to an increase in price. Maybe there is more going on right now than initially meets the eye, let’s take a closer look at copper.

What exactly is copper?

Copper has been in use for at least 10,000 years and is the first metal used by early civilizations. It remains a building block of modern life with over 95% of all copper mined being extracted since 1900. A few of the major products made from copper include electrical cables, data cables, tubing, plumbing, radiators, and other electrical equipment. 575,000 tons are used yearly for the world’s needs. According to a Yale University study, demand will outstrip supply by 2100. China’s booming economy accounts for over 22% of the world’s demand for copper. As China and its neighboring economies develop, demand should continue to increase for this commodity.

How can copper be traded?

Copper is traded daily by institutions, industry and retail traders. The easiest way to access the copper market is via the Comex miNY future contract. This E-mini contract is traded on GLOBEX with the symbol QC. It’s traded in units of 12500 pounds and has a minimum price fluctuation of .0020 cents per pound. It takes $3882.00 in margin to trade one contract. However, there are brokers that will allow you to day trade for much less, as long as your positions are closed prior to the sessions close.

Why Now? Fundamental and Technical Reasons

In addition to increasing worldwide demand and overall supply issues, copper prices are tied to the dollar and oil. As the dollar declines, oil and copper increase in price due to increasing demand for alternative investments. There is a copper mine strike in Peru set to take place on July 16th. This is exciting to me, as it has the potential to be a prolonged situation and may seriously disrupt production leading to a surge in prices. In fact, prices have moved slightly higher on the news already. I would suggest watching this news story very closely.

Price has pulled back off of recent highs and appears to be consolidating right on the 50-day Simple Moving Average. This is a buy signal for many technical traders. Price may be beginning to start another surge toward the highs. In my opinion, both the technical and short term fundamental pictures are very bullish for copper. Savvy traders may wish to take a look at the ugly metal right now.

David Goodboy is Vice President of Marketing for a New York City based multi-strategy fund.