From wiring and plumbing to coinage and electronics, copper is key for a range of applications. In fact, the metal is often said to have a PhD in economics, since its widespread use makes it a valuable indicator for the global economy.
The copper price has been on an upswing since the second half of 2016, buoyed by strong demand from China and speculation about US President Donald Trump’s infrastructure spending plans. That said, there are plenty of other factors affecting the copper price today, and investors keen on the base metal would do well to have an understanding of what they are.
With that in mind, here’s a short overview of what’s going on with the copper price today, and what investors need to know.
Copper price today: Supply and demand
Chile is the world’s number-one copper producer, with Peru and China coming in a distant second and third. On the demand side of things, China is in the lead by far, accounting for over 40 percent of global demand. A spike in demand from China led to a run in the copper price from 2003 to 2008, and copper rose again from late 2008 to 2011 after dropping drastically in the wake of the 2008 global financial crisis.
As mentioned, strong demand from China also helped bump up the copper price last year, as did optimism about future US demand. Since then, the copper price has risen slightly, though uncertainty about supply has capped its gains. The below chart from Kitco provides a look at how the copper price has moved over the past 15 years:
While the outlook for copper in 2017 is uncertain, many analysts are calling for a market deficit for the first time in six years. No significant new sources of the metal are expected to come online in the near term, and stoppages at the world’s two largest copper mines, Escondida and Grasberg, have limited output of the metal this year.
According to to David Lilley, co-founder of RK Capital Management and one of the world’s top copper investors, the market is headed for a shortfall of 327,000 MT in 2017; he is also calling for a copper deficit of 600,000 MT in 2020. Similarly, Dominic Schnider of UBS Wealth Management in Hong Kong is calling for a copper deficit this year.
“We do see stronger global copper demand at 3.7 percent growth this year, because global industrial production is going to accelerate. We’re bullish, we see up to a 500,000 tonne deficit this year,” he said recently.
Copper price today: What’s next?
While the copper price has trended upward since 2016, it has not reacted as strongly to the coming deficit as some market watchers had hoped. The metal is up only 4 percent this year, but copper bulls insist that factors for a push higher are slowly falling into place.
For clues on the copper price forecast, it seems that growing demand from China and labor negotiations at top-producing mines will be the catalysts to watch.
Citi analysts have said they expect the copper price to peak at close to $7,000 per tonne this year, supported by a dramatically slowing rate of mine supply growth and a stabilizing demand picture.
Similarly, Goldman Sachs (NYSE:GS) believes that increased demand from China will leave the market tighter than previously expected, which will support a more “bullish” environment for the metal at least until mid-2017. It’s calling for the copper price to hit $6,200 over the next six months.
Whether those copper price predictions come to pass or not remains to be seen. For now, it looks as though the red metal’s prospects are positive moving forward.
This is an updated version of an article originally published by the Investing News Network on November 30, 2015.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.