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 because its widespread use makes it a valuable indicator for the global economy.
Knowing the factors that move the copper price today is helpful for investors who are taking a look at the bigger picture. As of January 16, 2018, the red metal was sitting at $7,078 per tonne on the LME.
Overall, 2017 was a good year for copper, although it was not without a few downturns. While it fell below $5,500 in May, by the end of the year it was reaching four-year highs. Throughout the year, the metal’s major rallies and drops were attributed to a number of key factors.
Those keen on the base metal would do well to have an understanding of what those factors are. With that in mind, here’s a short overview of what’s going on with the copper price today.
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. China also takes the lead on the demand side, accounting for over 40 percent of global demand. A spike in demand from China led to a run in copper prices 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.
Chinese demand — Chinese demand continues to play a role in the copper price today, and strong economic data from the country bolstered the metal’s price throughout August of last year.
Moving forward, it appears that demand from the Asian nation could continue to play a significant role in driving copper prices. At the end of 2017, Karen Norton of Thomson Reuters GFMS said she expects consumption in China to continue to increase next year, but at a slower rate than in 2017.
Similarly, Dan Smith, head of commodities research at Oxford Economics, is calling for an uptick in Chinese demand, although it will still be lower than what has been seen in the past five to 10 years.
There are a number of drivers of Chinese copper demand, including the country’s Made in China 2025 program, which entails upgrading many factories into “smart factories” that will require more copper. Other drivers include demand for higher-efficiency vehicles, the internet of things and green manufacturing. China’s demand for copper in these sectors is expected to grow from “0.87 kilograms of copper per kilowatt (kg/kw) in 2015 to 1.56 kg/kw in 2025.”
Mine production — Mine disruptions are another important influence on the copper price today. BHP Billiton’s (NYSE:BHP,ASX:BHP,LSE:BLT) Escondida mine in Chile faced a labor strike early in 2017 that halted production for several weeks, and Freeport-McMoran’s (NYSE:FCX) Grasberg mine in Indonesia faced disruptions during a mining permit dispute with Indonesia’s government.
The Escondida strike finished in March of last year, only to be reignited in November over labor contracts. It ended after 24 hours, and BHP decided to lay off 120 workers that same week. Teck Resources (TSX:TCK.B,NYSE:TECK) and Southern Copper (NYSE:SCCO) also both faced strikes at their Chilean copper mines in 2017, although Southern claimed that its strike did not impact operations.
Supply concerns have since been alleviated as most of these mines are operational, allowing production to continue in both countries. But such issues remain important to keep an eye on.
Inventory fluctuations — Declining inventories through August 2017 helped lift copper prices, with Shanghai Futures Exchange and LME inventories both experiencing significant drops. COMEX stocks increased during the same period, and the declines in inventory were partially accounted for through the use of readily available scrap copper.
How much should investors pay attention to copper stockpiles? Speaking to Reuters, Robin Bhar, head of metals research at Societe Generale (EPA:GLE), emphasized that it’s important to look at inventories across the globe to get a better picture of the copper supply landscape.
“The LME in theory is a barometer of supply and demand and looking at LME stocks you’d be pretty bullish on metals prices. But if you look at the global picture and include ShFE and Comex you probably want to be a bit more neutral,” he said.
Copper price today: What’s next?
Copper currently has many factors working in its favor. After enjoying a boost this past year, it’s possible that further strikes in 2018 may impact supply, driving prices up further. Increased demand and supply from China, along with other drivers, will also play a part in whether copper prices swing up or down.
In the mid to long term, there are a few developments worth nothing that may affect the outlook for copper. The Trump administration’s plan to invest $1 trillion in infrastructure is one of them — whether the initiative will be successfully passed or not is unknown.
What do you think is next for the red metal? Tell us in the comments what you think drives the copper price today, and what could be in store for the future.
This is an updated version of an article originally published by the Investing News Network in 2015.
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Securities Disclosure: I, Amanda Kay, hold no direct investment interest in any company mentioned in this article.