It bears the atomic number 29, and you may think of it as a boring element. But copper is also one of the best conductors of electricity. And in today’s world, that means it’s found in just about everything.
From the electrical wiring of new homes to countless applications in vehicles (nearly 1 mile of wire alone in every vehicle — even more for hybrids), to the basic component of circuit boards — this is a ubiquitous commodity that helps us maintain our high-speed lifestyles.
All told, the world uses 15 million tonnes of copper every year. And its growth shows no sign of slowing.
Yet according to a recent New York Times article, recent moves by the SEC loosening regulations on JPMorgan Chase & Co (NYSE:JPM), Goldman Sachs Group Inc (NYSE:GS), and BlackRock, Inc. (NYSE:BLK) have the potential to disrupt the market as it exists today — or send the price of everything that uses it soaring.
First, what exactly do they want to do?
A few years ago, JPMorgan Chase & Co (NYSE:JPM), Goldman Sachs Group Inc (NYSE:GS), and BlackRock were looking for a way to buy about 80% of copper available on the market. They wanted to set up ETFs that would track the price movements of the commodity, backed up by real, physical assets. It’s a way for companies to hedge exposure to copper, as well as a way for others to invest in it.
And it makes sense, especially with a commodity like copper. I already mentioned how copper is used in virtually everything we use today. But that’s not all — demand for the metal is soaring in China. In fact, demand there has tripled in the past 15 years alone.
And although the stocks of leading copper miners Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) and Rio Tinto plc (ADR) (NYSE:RIO) tend to rise alongside the price of copper, some of these banks’ clients need a more direct way to access the commodity — without worrying about the added business risk those companies bring (like, for instance, their respective $21 billion and $26 billion debt loads).
In December, the SEC granted approval for these copper funds, despite opposition from economists and companies that regularly use copper.
Unfortunately, the reality is that, as with all commodities, the market price is a function of supply and demand. If demand is growing, and supply is constricted (as it could be if holed up in warehouses owned by investment banks), it’s inevitable that the price would shoot up.