Is it too late to bet on the copper price rally?

METAL prices have soared since the start of the year – but it might not be too late for those who have missed the rally to still invest.

Copper has risen to $2.75 a pound from around $2.10 just six months ago.

It’s an incredible price rise of around 30pc for the industrial metal which is used in everything from construction for piping and roofing to industrial processes.

But today’s price is nothing on its historical highs. A so-called super-cycle, largely driven by voracious demand in China, saw copper reach $4.50 in 2011.

With such values in recent memory, some experts believe the current metal rally could continue for some time yet. But it is not an investment for the faint-hearted.

Jason Hollands, managing director at Bestinvest, says: ‘Commodity prices have taken investors on a brutal rollercoaster ride in recent years. Extracting metals is a very costly business so even modest swings in prices can make a big difference as to whether a mining company makes a profit or a loss – and that makes it an incredibly risky place to invest.’

Much of the recent rally has been driven by promises of major infrastructure investment by US President Trump. Any type of building, be it homes, transport links or a wall, will require commodities and a surge in demand could drive prices higher.

Platinum has recently crossed the $1,000 per ounce marker, but back in 2013 it reached $1,700.

Silver, at $18, is about half its value just five years ago. In 2011 it climbed as high at $50 an ounce. Palladium has surged more than 50pc since the start of the year from $500 to $790.

But as recently as last summer the precious metal sold for more than $900 an ounce. On the back of the trend, shares in mining firms have soared.

Several gold miners this week announced larger-than-expected dividends after a rally in its price helped performance.

Gold has climbed past $1,200 an ounce, but only a few years ago experts were betting it would smash through the $2,000 marker. Metals have had a dreadful time over the past few years. That’s primarily because of investor caution after the financial crisis and a glut of supply dragging down prices to long-term lows.

ONE of the issues for mining companies is that they have to manage their business several years in advance.

When demand for metals was surging they ploughed cash into exploration and production to try to capitalise on high prices and keep up with demand.

But it takes years for a new mine to be built and for production to begin. By the time many were up and running the global financial crisis had occurred.

That recession saw demand fall off a cliff and the situation was exacerbated as China started its shift from an industrial economy to a consumer-led one, which meant the world’s biggest importer of metals was no longer propping up demand.

Miners were hit hard; they reined in spending and spent years shoring up their balance sheets, in many cases slashing dividends.

Ironically, the fact that miners stopped splashing cash to protect their businesses has led to concerns about lack of supply because no new mines have been built, and started driving prices up again.

James Sutton, manager of the JPM Natural Resources fund, says: ‘This is what always happens, it’s a cyclical sector and the companies have to make decisions on a four-year basis. That’s really hard to do – right now we don’t know what is going to happening in the world in three months’ time, let alone in four years.’

But Sutton is confident there are still opportunities in the sector.

China’s shift in focus from industrialisation may have hit the steel price but it could be good for copper. A shift to a consumer-led economy means more demand for the commodities needed in electronics. For example, copper is used in circuit boards and chips for tablet computers and mobile phones.

Increasing wealth and growing middle classes in emerging economies mean more people will want precious metals and stones such as gold and diamonds.

The rise of the electric car, meanwhile, should drive demand for nickel and lithium.

But there is still a sense of caution around the sector. Sutton is investing in big blue-chips such as Antofagasta – a high-quality company with a strong balance sheet which means it can more easily ride the ups and downs.

He bought Glencore shares when the firm was ‘desperately’ raising capital in 2015, for 80p each – they are now worth 320p.

Sutton’s fund has doubled investors’ money over the past year. But if you had invested £1,000 five years ago you would have just £700 left today.

That demonstrates how risky a bet on raw materials can be.

It’s this volatility that leads Hollands to conclude: ‘If anything, this is a time for investors who have enjoyed the rally to consider getting out.’