How to Invest in Copper

Alongside precious metals, industrial metals are also interesting for many investors. Copper is one example. But is this metal, with its many uses, a viable investment vehicle? This moneyland.ch guide answers the most important questions.

Why are investors attracted to copper?

Copper is in strong demand as an industrial metal. Because its physical properties make it a good conductor of electricity, it is used in many different industry sectors. And demand for copper will likely go up, as copper is needed by many industries that play a key role in decarbonization and the move to a green economy. Electric vehicles and solar energy are two examples.

Many analysts believe that the supply will not be able to keep up with the growing demand. This scenario would result in the value of copper going up over the long term.

Can I buy physical copper?

Buying physical copper is the most obvious way to invest in the metal. The advantage of buying and holding actual copper is that you are its owner, so there is no third-party risk. You can buy copper from metal components manufacturers or dealers, or from some precious metal dealers.

But for many investors, buying physical copper is only an option in theory because of the many disadvantages:

• Value-added tax: Unlike gold, copper is subject to Swiss value-added tax (VAT).
• Markups: Dealers add high markups over the market price as per the London Metal Exchange (LME), the world’s biggest metal exchange.
• Storage: Storing copper is difficult because its value is relatively low. For a substantial investment, you have to hold very large amounts of copper. This can generate high storage costs. For example, if you want to invest 1000 francs, you would have to buy and store around 120 kilograms of copper (as per February 21, 2024).

Can I invest in copper with ETFs?

No. Unlike precious metals like gold, silver, platinum, and palladium, there are no exchange-traded funds (ETFs) that invest only in copper. But there are copper exchange-traded commodities (ETCs) that can be used instead of ETFs as an alternative to buying physical copper.

What should I know about ETCs?

For you as an investor, using ETCs works very similarly to ETFs: You can buy and sell at any time during trading hours using a stock brokerage account. ETCs enable you to invest in copper without having to physically buy the metal. This lets you avoid the complications of having to store the copper yourself.

An ETC’s fees are shown as its total expense ratio (TER), as with ETFs. In addition to the fees charged for the ETC itself, you also pay brokerage fees and custody fees to your bank. These costs vary between stock brokerage accounts.

It is important to note that unlike ETF shares, ETCs are not segregated in the event that their issuer goes bankrupt. They are simply debt claims against the ETC’s issuer. As an investor, you carry the third-party risk, and can make a loss if the issuer becomes insolvent.

But the biggest difference is that copper ETCs do not replicate the current spot price of copper. Instead, they use futures to speculate on future developments in the copper price. For that reason, they are referred to as copper futures ETCs. So, when you use ETCs to invest in copper, you are simply betting on how the copper price will develop in the future. That makes these products more speculative than physically-replicating precious metal ETFs that actually invest in the underlying metal.

Which copper ETCs are there?

Currently (as per February 2024), there are seven different copper ETCs available to Swiss investors. You can find them in Table 1.

Table 1: Copper ETCs

Date: 20.02.2024.

The ETCs in Table 1 are all synthetic and use swaps. These are contracts by which a third party replicates the copper price for the ETC’s issuer, which provides the third party with a portfolio of securities in exchange.

Are there other ways to invest in copper?

In addition to physical copper and copper ETCs, there are also other ways to participate in copper price developments:

• Stocks: You can buy shares in companies that mine or trade in copper. Examples include BHP (Australia), Rio Tinto (United Kingdom), and Glencore (Switzerland). In order to buy and sell shares, you must have a stock brokerage account.
• CFDs: Contracts for difference (CFDs) can be used to speculate on copper price developments. Because CFDs use leverage, it is possible to make large returns very quickly, but you can also make large losses just as quickly. In some cases, you may lose more than you initially invested. Because of the high risks, using CFDs is not recommended for inexperienced investors.

What are the risks of investing in copper?

The copper price is considered to be a fairly reliable barometer of the economic situation. Because of the strong industrial demand for copper, its price is very sensitive to economic fluctuations. As an investor, you have to be prepared for high volatility. If dealing with price fluctuations and red numbers in your portfolio is not something you handle well, then you should probably avoid investing in copper.

Although there are many signs that point towards a climb in copper prices over the long term, investing in tangible assets is always connected with risk. There is never a guarantee that your investment will pay off. There is a chance that you may incur major losses, both in the short term and in the long term. That is why it is so important never to put all your eggs in one basket. Commodities like copper should only ever be seen as one small component to diversify your overall investment portfolio.

If you use ETCs, you need to account for third-party risk and currency exchange risks. Most ETCs are denominated by either the euro or the US dollar. An unfavorable exchange rate to the Swiss franc has a negative impact on investments for Swiss investors.

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Checklist for investing in ETFs
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