Copper, The Copper Cave, Etc.
Posted: Mon Sep 12, 2011 5:32 pmI recently received a message with some good questions about copper in general, and my particular business. Since I took the time to write a thorough response, and I get these questions a lot, I thought it would be worth posting here.
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Glad to hear it
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For the sake of comparison, $1 over spot on a 1 oz silver round would be 2.5% over. $1 over spot on a 1 oz copper round would be 365% over. Obviously the PERCENTAGE over spot will always be higher for copper, so long as the price of copper is lower than silver, but that does NOT mean it is any cheaper to make a copper round than it is to make a silver round. In fact, it is typically MORE EXPENSIVE to make anything out of copper, because it is much more difficult to work with than silver.
I'll start with this explanation, which I have sent to quite a few in response to allegations of over-pricing. This was geared toward customers with unknown background info, so it probably breaks it down a little further than necessary for you, already having experience with metals, but it's a good place to start.
The spot prices are for paper contracts (large contracts, copper for instance is done in 25,000 pound contracts). Many traders just buy and sell the paper contracts, speculating on the price and hoping to make some money trading. If you buy a contract at the spot price and actually want to take delivery of the physical metal, you have to pay additional delivery fees to get the metal out of a contracted warehouse, and then you have 25,000 pounds of large industrial cathodes or rough ingots you have to pay to transport.
Turning those bulk forms of metal into manageable units requires breaking them down into a smaller form, usually by melting and re-pouring. Melting and pouring copper requires a lot of care because it oxidizes very easily when molten, and will trap oxygen if not handled properly.
This is the point where most of the bullion makers step in and purchase these smaller units of metal, so they are already paying well over spot to the companies that break them down into manageable sizes. Then the bullion maker has to have the skill and equipment to turn the raw metal into a recognizable form. Depending on the product, this might include furnaces, molds, rolling mills, coining presses, dies and stamps, etc. The bullion maker then marks up the price to cover the raw material, their labor, energy, equipment, and a profit margin, and sells the finished products in bulk quantities to dealers like myself.
I get the bulk quantities of products and individually package them in sealed bags or holders, photograph them, advertise them, help customers with questions, and process and ship orders. Of course I have the cost of the product itself, plus maintaining the website, fees from credit card companies, the packaging and shipping materials, postage, etc., and then I have to make something on it or I wouldn't be in business.
Once you go through all that, you arrive at the prices you see on the website. With gold and silver, the price over spot is less noticeable because you're dealing with a higher value metal, so the "mark-up" is a smaller percentage of the total product price. If we look at the actual dollar value per troy ounce over the spot price, you'll find that it's not dramatically different for copper than it is for silver or gold. For instance, the 1 kilogram copper bars I have now sell for $20.95 each. With copper spot at $4.10 per pound, that works out to just $0.37 per troy ounce over spot. That would be considered a great price on silver or gold.
Some people think that if they can buy an ounce of silver for $1 over spot, they should be able to buy a pound of copper for $1 over spot, but the math just doesn't work out because they are expecting somebody to buy, process, and ship almost 15 times as much metal for the same $1. To compare "premiums" over spot properly, you have to compare the cost per unit weight, using the same unit weight.
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You've already done the research and found that copper sells consistently at these levels. That means it's not "over-priced," it's MARKET-PRICED.
Copper is in the same periodic group as gold and silver, but it's traded as an industrial metal. It has been used in coins for thousands of years, but it is also used in pipes and wire. This debate can go back and forth all day, and frankly I'm not all that interested in pinning down a label for copper. It is what it is, which is a useful and recognized element with REAL value.
If you really want to look at over-priced, figure out how to get access to Wal-Mart's purchasing records, or any retailer for that matter, and compare their cost to the price on the shelf. 50%, 100%, 200%, 500%, 1000% mark-ups are the NORM, but the market supports it, and I don't see many people walking up to the customer service desk to point out the current trading price of pulpwood and lecture the manager on how "over-priced" the toilet paper is.
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That's simply a testament to supply and demand. Right now, demand is far exceeding my supply. It typically goes like this: I order a couple hundred pounds of copper bars and front the money. It takes 2-3 weeks for the mint to make the bars and ship them to me. I package them, make them available on the website, and in the meantime place my next order with my supplier. Within a week about 70% of the bars are sold, and I still have 1-2 weeks to wait before my next shipment arrives. If cash flow wasn't an issue, I would be ordering much more often, but the mint requires payment up front and then starts production, and unlike other dealers I don't sell items until I have them in hand and ready to ship, so alas I can only keep so much product flowing.
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Stackers really have to get over the whole "premium over spot" thing in general, not just with copper. The spot price is a PAPER price for a HUGE future contract, which the vast majority of people on this forum and many others consistently say is manipulated. Physical bullion, on the other hand, is HERE and NOW, subject to the FREE MARKET. There is no requirement, law, agreement, trade organization, etc. that dictates physical bullion prices must be tied to paper spot prices, and God knows it wouldn't be followed if there was one.
When people buy, they want to buy at spot because "that's the price of silver." When people sell, they want more, because "the paper price is manipulated and physical is worth more." Human nature, I suppose, but you can't have it both ways. Sure, paper prices can be used as an indicator of current supply and demand, but they're a guide, nothing more. Physical bullion is worth whatever the buyer and seller agree upon, no COMEX required.
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The VAST majority of those eBay sellers and "other dealers" buy from one or two mints. I buy regularly from over a dozen suppliers, occasionally from a dozen more, and I buy from dozens of individuals here and on other metals forums.
True, at this time I am primarily a "middleman," but I also have a lot in the works on the production side of things. I have two furnaces, a rolling mill, a sequential (serial) numbering stamp, I am making molds and lettering/logo stamps, I am restoring an old coining press and have access to others, I will be making my own coining dies, I have packaging equipment, scales, coin-processing equipment, secure storage, access to a forklift...the list goes on. I am 22, I just graduated from a top engineering school (with the accumulated loans to prove it), I have been at this business for over three years and in business for seven, and I would NOT be putting my money and livelihood at risk if I did not believe 100% that there is a market to support what I am doing.
Some people like hunting and pecking on eBay, or getting one style from one dealer, but others prefer to get a variety of items in one spot, for one payment, with one shipping charge. I also ship internationally, which many others do not. I sell at least as much silver to overseas customers as I do domestically. Again, it's a free market. If I didn't appeal to a customer base, I wouldn't be in business.
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I was told that you and your individiuals over on coppercave.com were the ones to speak with, regarding reasonable copper prices.
Glad to hear it
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A perusal of that site reveals things:
Item: 1/4 oz rounds at 1000% of spot
Item: 1 oz rounds at 900% of spot
Item: 1/2 lb bars at 247.5% of spot
Item: 1 lb bars at 220% of spot
Item: No 2 ounce of either round or bar
Item: No 1/2 ounce round
For the sake of comparison, $1 over spot on a 1 oz silver round would be 2.5% over. $1 over spot on a 1 oz copper round would be 365% over. Obviously the PERCENTAGE over spot will always be higher for copper, so long as the price of copper is lower than silver, but that does NOT mean it is any cheaper to make a copper round than it is to make a silver round. In fact, it is typically MORE EXPENSIVE to make anything out of copper, because it is much more difficult to work with than silver.
I'll start with this explanation, which I have sent to quite a few in response to allegations of over-pricing. This was geared toward customers with unknown background info, so it probably breaks it down a little further than necessary for you, already having experience with metals, but it's a good place to start.
The spot prices are for paper contracts (large contracts, copper for instance is done in 25,000 pound contracts). Many traders just buy and sell the paper contracts, speculating on the price and hoping to make some money trading. If you buy a contract at the spot price and actually want to take delivery of the physical metal, you have to pay additional delivery fees to get the metal out of a contracted warehouse, and then you have 25,000 pounds of large industrial cathodes or rough ingots you have to pay to transport.
Turning those bulk forms of metal into manageable units requires breaking them down into a smaller form, usually by melting and re-pouring. Melting and pouring copper requires a lot of care because it oxidizes very easily when molten, and will trap oxygen if not handled properly.
This is the point where most of the bullion makers step in and purchase these smaller units of metal, so they are already paying well over spot to the companies that break them down into manageable sizes. Then the bullion maker has to have the skill and equipment to turn the raw metal into a recognizable form. Depending on the product, this might include furnaces, molds, rolling mills, coining presses, dies and stamps, etc. The bullion maker then marks up the price to cover the raw material, their labor, energy, equipment, and a profit margin, and sells the finished products in bulk quantities to dealers like myself.
I get the bulk quantities of products and individually package them in sealed bags or holders, photograph them, advertise them, help customers with questions, and process and ship orders. Of course I have the cost of the product itself, plus maintaining the website, fees from credit card companies, the packaging and shipping materials, postage, etc., and then I have to make something on it or I wouldn't be in business.
Once you go through all that, you arrive at the prices you see on the website. With gold and silver, the price over spot is less noticeable because you're dealing with a higher value metal, so the "mark-up" is a smaller percentage of the total product price. If we look at the actual dollar value per troy ounce over the spot price, you'll find that it's not dramatically different for copper than it is for silver or gold. For instance, the 1 kilogram copper bars I have now sell for $20.95 each. With copper spot at $4.10 per pound, that works out to just $0.37 per troy ounce over spot. That would be considered a great price on silver or gold.
Some people think that if they can buy an ounce of silver for $1 over spot, they should be able to buy a pound of copper for $1 over spot, but the math just doesn't work out because they are expecting somebody to buy, process, and ship almost 15 times as much metal for the same $1. To compare "premiums" over spot properly, you have to compare the cost per unit weight, using the same unit weight.
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Copper, however, is not liquid enough to tolerate the strains of overpricing. Its value as an industrial metal prevent that, at this time.
You've already done the research and found that copper sells consistently at these levels. That means it's not "over-priced," it's MARKET-PRICED.
Copper is in the same periodic group as gold and silver, but it's traded as an industrial metal. It has been used in coins for thousands of years, but it is also used in pipes and wire. This debate can go back and forth all day, and frankly I'm not all that interested in pinning down a label for copper. It is what it is, which is a useful and recognized element with REAL value.
If you really want to look at over-priced, figure out how to get access to Wal-Mart's purchasing records, or any retailer for that matter, and compare their cost to the price on the shelf. 50%, 100%, 200%, 500%, 1000% mark-ups are the NORM, but the market supports it, and I don't see many people walking up to the customer service desk to point out the current trading price of pulpwood and lecture the manager on how "over-priced" the toilet paper is.
----
Item: over a third of your half pound and larger items out of stock.
That's simply a testament to supply and demand. Right now, demand is far exceeding my supply. It typically goes like this: I order a couple hundred pounds of copper bars and front the money. It takes 2-3 weeks for the mint to make the bars and ship them to me. I package them, make them available on the website, and in the meantime place my next order with my supplier. Within a week about 70% of the bars are sold, and I still have 1-2 weeks to wait before my next shipment arrives. If cash flow wasn't an issue, I would be ordering much more often, but the mint requires payment up front and then starts production, and unlike other dealers I don't sell items until I have them in hand and ready to ship, so alas I can only keep so much product flowing.
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These are practices unpalatable to someone on a budget, and IMO deleterious to the copper trade, bullion and otherwise, as a whole.
Stackers really have to get over the whole "premium over spot" thing in general, not just with copper. The spot price is a PAPER price for a HUGE future contract, which the vast majority of people on this forum and many others consistently say is manipulated. Physical bullion, on the other hand, is HERE and NOW, subject to the FREE MARKET. There is no requirement, law, agreement, trade organization, etc. that dictates physical bullion prices must be tied to paper spot prices, and God knows it wouldn't be followed if there was one.
When people buy, they want to buy at spot because "that's the price of silver." When people sell, they want more, because "the paper price is manipulated and physical is worth more." Human nature, I suppose, but you can't have it both ways. Sure, paper prices can be used as an indicator of current supply and demand, but they're a guide, nothing more. Physical bullion is worth whatever the buyer and seller agree upon, no COMEX required.
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I cannot see the Cave's advantages in pricing save that they are slightly under the markup of some of the copper gangs in Ebay.
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CopperCave and the ebay gangs and a number of others listed in the net appear to be simply naught more than middlemen for true mints and foundries. This is not a problem in itself, it de-bottlenecks the flow of product from producer to consumer and allows the producer to run cheaper from not needing its own sales division save to the middlemen.
The VAST majority of those eBay sellers and "other dealers" buy from one or two mints. I buy regularly from over a dozen suppliers, occasionally from a dozen more, and I buy from dozens of individuals here and on other metals forums.
True, at this time I am primarily a "middleman," but I also have a lot in the works on the production side of things. I have two furnaces, a rolling mill, a sequential (serial) numbering stamp, I am making molds and lettering/logo stamps, I am restoring an old coining press and have access to others, I will be making my own coining dies, I have packaging equipment, scales, coin-processing equipment, secure storage, access to a forklift...the list goes on. I am 22, I just graduated from a top engineering school (with the accumulated loans to prove it), I have been at this business for over three years and in business for seven, and I would NOT be putting my money and livelihood at risk if I did not believe 100% that there is a market to support what I am doing.
Some people like hunting and pecking on eBay, or getting one style from one dealer, but others prefer to get a variety of items in one spot, for one payment, with one shipping charge. I also ship internationally, which many others do not. I sell at least as much silver to overseas customers as I do domestically. Again, it's a free market. If I didn't appeal to a customer base, I wouldn't be in business.
