Is copper too bulky to buy?

This might sound promising but making money from copper can be tough. Analysts at Citi warn new mines starting up in Chile, Peru and Mongolia could push up supply by 14 per cent or so in 2014 alone - diminishing demand and ultimately, the price. Several analysts are predicting demand growth from China, but they are nervous this may disappoint expectations. As a result, they have significantly reduced price expectations for 2013 to 2015 on growing surplus forecasts, predicting copper prices to an average of $6,775 (£4,474.77) a tonne in 2014, and $6,800 a tonne in 2015.

This sounds gloomy, but Martin Arnold, director of research at ETF Securities says there is evidence the tide is turning.

He points to a supply offtake from a recent US mine wall collapse, coupled with persistent labour issues in Chile, the world's largest copper miner, and says it could mean copper surplus forecasts will have to be revised.

He also claims the demand-supply balance in the copper market is starting to tighten, as well as copper prices being likely to rise as a result of the unwinding of aggressive bearish positioning on the metal which have caused net short positions to peak.

The expert views are mixed but if you do want to allocate a portion of your portfolio to copper, there are several exchange traded commodity (ETC) products that could give you exposure.

The first option available is physical ETCs which hold the metal in bars, normally in a warehouse operated by the London Metal Exchange.

There are two physical ETCs on the London Stock Exchange. The first is ETFS Physical Copper (PHCU). It comes with a management fee of 0.69 per cent, insurance cost of 0.12 per cent and annual rental fee (a storage cost for the copper) at 0.44 per cent, meaning you'll pay 1.25 per cent for the investment overall.

Db-x trackers also offers db Physical Copper ETC (XCO1). It has an annual administration fee (covering insurance and management) of 0.75 per cent, and a storage fee of $0.37 per tonne of copper held per day- which is roughly equal to an additional 0.2 per cent.

As you can see from the extra storage fees, the physical storage of copper is extremely expensive. This is because it costs the same to buy one troy ounce of gold as it does to buy around 190kg of copper meaning £1,000 of copper dwarves the physical size of £1,000 of gold. Because it's so much bulkier, storing it doesn't come cheap.

Some analysts think this cost just isn't worth it. Peter Sleep, ETF specialist at Seven Investment Management says: "I think you can make money from investing in a diversified basket of commodity futures, but not individual physical commodities. The cost of storage alone will kill your returns."

But you don't have to invest directly in lumps of metal in warehouses as there are a number of synthetic ETCs which hold baskets of futures contracts relating to the metal instead.

Synthetic products have the advantage of not having to shell out for the expense of storage so the charges are lower. ETF Securities’ ETFS Copper (COPA) has a management expense ratio of 0.49 per cent.

But the derivatives that underlie these investments are wildly complicated. The ETC needs to sell its derivatives before copper is delivered and buy new derivatives, and this can affect the performance, sometimes benefiting it and sometimes working against it - according to Adam Laird, passive portfolio manager at Hargreaves Lansdown.

Mr Laird notes: "Over the last few years, the ETF Securities' synthetic COPA ETC has tracked the copper price slightly closer, but I think most investors want the comfort of knowing that their ETC holds the physical metal."

He added if one of his clients was keen to invest in copper, he would suggest they opt for the db Physical Copper ETC (XCO1) but would suggest they invest no more than 3 per cent of their portfolio in it.

Copper ETCs listed on the London Stock Exchange