Market Beat: Investing in commodities such as copper
INCLINE VILLAGE, Nev. andamp;#8212; In 1983, Dr. John Linter, a professor at Harvard, did a study on investing to determine how a traditional portfolio of stocks and bonds would be affected by adding commodities.Commodities include precious metals like silver and gold, food products like corn, sugar and coffee and base metals like copper and iron. Our use of copper has increased significantly over the last several years.The Internet age brought about increased demands for electrical infrastructure. Emerging markets like China and India have been large consumers of copper as they build out their electrical power grids. The transition to alternative energy sources in the future will also require substantial copper usage.Global copper demand is strong and should remain strong in the years ahead. Current annual demand is 575,000 tons per year and that number is growing. By 2100, global demand should outstrip the amount extractable.Copper is one of the most widely used base metals. It is used in electrical wiring, water pipes, ammunition, jewelry and more. A Toyota Prius has about 300 pounds of copper in it and pure electric cars have even more.Wind turbines contain large amounts of copper. The amount varies by model; some many have thousands of pounds of copper in one turbine. The Vesta V90 which produces 3 Mw of power has 9400 pounds of copper in it. China is currently consuming 22 percent of the worldandamp;#8217;s copper.One good thing about copper is that it is highly recyclable. About 80 percent of the copper ever mined is still available today. As copper becomes more expensive, deposits that were once unprofitable to mine become feasible.There are many ways to play the long term demand story for copper. There are several copper exchange traded funds or ETFs to choose from. There are well established, blue chip mining companies that are big producers of copper and investing directly in one of them can be a good way to participate in copper.Some of them even pay some nice dividends. A cash dividend is a regular quarterly payment that investors can choose to take in cash or re-invest in more shares of the stock. One of the major copper producers currently pays a dividend of about 4 percent, which is a good yield today.Another strategy is to research junior mining companies to identify ones that have substantial copper deposits, but are not in production yet and hold them long term.Kenneth Roberts is a Truckee based Registered Investment Advisor. Information on his money management service can be found at http://www.fusiontargetretirement.com or by calling 775-657-8065. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.
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