What are Copper Futures?

Darrell Laurant

As with any other other commodity, those who engage in buying and selling copper futures are essentially betting that the future price of that product will rise or fall. The buyer agrees to pay a fixed price at some point in the future when an agreed-upon contract comes due. The seller agrees to sell for that price.

The amount of copper extracted from mines in Chile, Peru and South Africa can affect the global price of the metal.
The amount of copper extracted from mines in Chile, Peru and South Africa can affect the global price of the metal.

In theory, engaging in copper futures contracts can minimize the risk for those dealing in that metal. If the price rises, the buyer makes a profit, because he has arranged to buy copper for less than the going rate. If the price falls, it is to the advantage of the seller. In practice, however, only a small percentage of these copper futures contracts are ever actually consummated. Copper futures speculators are always ready to buy up and sell these contracts to other speculators in hopes that the price of copper will fluctuate to their advantage. Thus, they take the risk, and the possibility for profits, upon themselves.

Small nuggets of pure copper.
Small nuggets of pure copper.

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There are factors about copper that make it perhaps easier to track than many other commodities. Because it is an industrial metal best-known for plumbing fixtures and its ability to conduct electricity, it is closely tied to the building industry. The more homes and commercial structures are being built, the more copper is demanded, thus driving up the price on copper futures.

Of course, tracking world copper futures markets isn't that simple. China, for example, undertook a building boom prior to the 2008 Olympics even as the demand for copper was shrinking in the U.S. and Europe. Also, the production of copper in key mines in Chile, Peru and South Africa -- all potentially volatile places -- can affect the price, just as oil prices come down when high production creates a surplus.

Another unique factor of copper is that it is ideal for recycling. This has triggered a mini crime wave in the United States with copper wiring in all its forms being ripped out and resold, but it also serves as a brake on escalating prices. According to the Copper Development Association, more copper is recovered and put back into service in the United States than is derived from freshly mined ore.

Copper prices have been on a steady decline during 2008, a trend that is projected to continue in 2009. That, in itself, won't have a chilling effect on the buying and selling of copper futures, however. The question of how far down these prices will go provides the necessary mystery, as well as the opportunity for a quick profit.

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