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.
However, things haven’t been looking so hot for Dr. Copper lately. So far in 2015, copper prices have lost roughly 29 percent and are currently trading at about $2.09 per pound. Over the past five years, prices have steadily drifted lower, losing roughly 43 percent since peaking around $4.50 per pound in 2011.
That might not seem like good news for base metal investors, but some still see hope for a recovery in pricing in the medium term. 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 China and Peru coming in a distant second and third. On the demand side of things, China is in the lead by far, making up approximately 40 percent of global demand. A spike in demand from China led to a run-up in copper prices from 2003 to 2008, with prices rising again from late 2008 to 2011 following a drastic drop as a result of the 2008 global financial crisis.
However, demand growth in China has slowed in recent years, and with the red metal remaining in oversupply, investors are certainly hesitant. This chart from Kitco provides a look at the copper price over the past 15 years:
Copper ended the year with a 316,000 tonne surplus in 2014, and Thomson Reuters predicted earlier this year that that surplus would grow in 2015. More recently, the International Copper Study Group (ICSG) reported that the refined copper market had swung into surplus for the first eight months of 2015.
Plenty of market participants, including Goldman Sachs (NYSE:GS), are calling for copper prices to stay lower for longer, and to be sure, the most recent fall for the copper price today has gone unchecked despite some recent supply cuts from Glencore Plc (LSE:GLEN) and Freeport-McMoRan (NYSE:FCX) (455,000 tonnes and 250 million pounds respectively).
Copper prices have also been pressured by a stronger US dollar, which makes the metal more expensive since contracts are often priced in that currency.
Still, it isn’t all bad for the red metal. In a recent interview, Stefan Ioannou of Haywood Securities pointed out that demand from China is still growing on an absolute basis. Furthermore, he said that he expects lower prices to eventually push excess supply out of the market, which would be a plus for prices. Roughly 20 percent of the world’s mines are not economic with copper prices at $2 per pound, so the current environment certainly spells trouble for higher cost operations.
Copper price today: what’s next?
Beyond some of the supply issues mentioned above, falling grades at mines around the world, worries over water shortages and inevitable yet unpredictable supply disruptions have some worried about copper supply issues in the medium term. As Cormark Securities noted this summer, lower prices have led to cuts in exploration spending, leading to weak development pipelines.
Meanwhile, back in May, Thomson Reuters was predicting an incentive copper price — or the price needed to incentivize new mine development —of just over $7,000 per tonne.
Certainly, positive copper price forecasts have fallen by the wayside as the metal dropped drastically in the second half of the year. And while most agree that copper is set to rise in the medium term, there’s also a general consensus that the red metal’s fortunes won’t improve in the very near future. Still, for investors interested in the red metal, it could be worth keeping a close eye on prices in order to be prepared when the market improves.
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.