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GPF Physical Copper ETC

GPF Physical Copper ETC

This is the only physically-backed Copper ETC available on the European market.

  • Competitive TER

  • Physically backed with allocated copper in warehouses

  • Ownership tracked with Distributed Ledger Technology

Investment Case for Copper

Applications

Copper has a vast array of applications spanning across many market sectors. Data from Bloomberg Intelligence suggests that approximately 30% of copper demand is for the construction industry, another 30% is consumed by the equipment sector, 15% is consumed in infrastructure, 13% is consumed by the transportation sector and 12% is consumed by the industrial sector. Indeed, the use of copper is so pervasive in virtually every aspect of human activity that the health of the global economy is sometimes gauged by the price action of ‘Doctor Copper’. 

Copper is currently a niche investment product, though a range of investment vehicles currently includes copper bars and coins and Exchange Traded Funds (ETFs). Going forward, copper’s cost effectiveness as a component of Electric Vehicle batteries and related infrastructure, has significant potential for future growth. 

Investment Qualities

Like other metals, copper has a number of attractive qualities as an investment including:

  • Provides diversification

  • Is a play on renewable energy

  • Is a play on global growth

Like most metals, copper has historically exhibited low correlation to the performance of equity and debt markets. Over the last 20 years, the correlation of spot copper to equity and debt markets is only 0.5 and 0.2 respectively 1. With such low correlations to equity and debt markets, even small allocations to copper provide meaningful improvements in the efficiency and risk characteristics of a 60/40 portfolio.

Many investors don’t like metals like copper as an investment, as it pays no income stream whilst incurring storage costs. However, today we live in a world where cash also pays little to no interest and government bond yields are low-to-negatively yielding, which makes this specific argument against holding copper a lot less relevant. It is also worth noting that according to the IMF 2, pandemics typically depress real interest rates over multiple decades which again implies a favourable environment for investing in copper.

Renewable Energy

According to the Copper Alliance, 12x more copper is used in a given renewable energy system than a comparable system based on traditional energy sources. In wind energy, for example, copper is used in the rotor, high-voltage power cable conductors and transformer coils. In photovoltaics, copper is used in the solar cells, cabling and transformers. Given governments across the world are increasingly moving towards carbon neutral economies, the outlook for renewable energy growth is strong and likely to remain so for the foreseeable future and consequently the demand for copper should also remain well supported.

Dr. Copper

2020 has been unprecedented in modern memory, with global growth interrupted by pandemic-induced lockdowns and demand destruction. According to Reuters 3, governments and central banks pumped $15 trillion of stimulus into their economies after the first wave of the pandemic. Such levels of stimulus are bound to drive growth and demand for copper as happened following the GFC of 2008 (see below).

Price History

Copper’s price has approximately increased 4x over the last 20 years outperforming the S&P 500’s approximately 2.5x gain during the same period. However, as can be seen from the price chart, performance can be volatile with the best performance period following the 2008 GFC. As the world recovers from the 2020 crisis, the outlook for copper could be very exciting if it follows a similar path to 2008.

Properties

Copper is a chemical element with the symbol Cu (from Latin cuprum, itself stemming from aes cyprium ‘metal of Cyprus’) and the atomic number 29. It is a relatively soft metal and melts at metallurgically moderate temperatures. It is somewhat denser than iron, yet is significantly more workable with higher levels of malleability (being able to be beaten into sheets) and ductility (being drawn into wires). It exhibits a characteristic reddish-brown colour in natural light. Copper is an excellent conductor of both heat and electricity. It is more chemically reactive than the other ‘noble’ metals, but may be considered one of them. Copper exposed to damp air will eventually oxidise to form a layer of green verdigris, or patina, preventing further oxidation.

Occurrence

Copper is a relatively common element in earth’s crust, however only a small fraction is commercially recoverable. Most copper is mined or extracted as copper sulphide ores such as chalcopyrite, bomite, covellite and chalcocite, from large open pit mines deposits that contain 0.4% -1.0% copper. Copper can also be found in small amounts as the native metal.

According to the most recent US Geological Survey (January 2020) some 20m tonnes of copper was mined in 2019. Production by geography is led by Chile (28.0%), followed by Peru (12,0%), China (8.0%), the United States (6.5%), the Democratic Republic of Congo (6.5%) Australia (4.8%), Zambia (4.0%), Mexico (3.9%), Russia (3.8%) and Kazakhstan (3.5%). Leading copper mining companies include Freeport-McMoRan, Codelco, BHP, Glencore, southern Copper, Antofagasta, Rio Tinto, KGHM Polska, First Quantum and Vale.

History

Copper is considered one of the ‘metals of antiquity’ and has been used by humans for thousands of years. It lends itself to the (Chalcolithic) period between the Neolithic (Stone) and Bronze Ages from the mid-5th millennium BCE to late 4th millennium BCE. Copper mining and smelting were certainly commonplace by 4500 BCE in the Balkans – Bulgaria, Greece, Serbia and Turkey - and small artifacts of natural (native) copper have been found that apparently date back to 8000 BCE. Copper is often taken as being the metal that sparked the development of metallurgy.

Footnotes

1 - MSCI AC Equity and Global Aggregate
2 - “The Long Economic Hangover of Pandemics”, June 2020, Oscar Jorda, Sanjay Singh, Alan Taylor
3 - “$15 trillion and counting: global stimulus so far”, May 11, 2020, Tommy Wilkes, Ritvik Carvalho

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