What factors impact the copper price today? This quick look at the market covers the dynamics between supply, demand and more.
From wiring and plumbing to electric vehicles and electronics, base metal copper is key for a range of important applications in various industries. In fact, it's even earned the moniker "Dr. Copper."
That's because copper's widespread use makes it a valuable indicator for global economic health. Knowing the factors that move the copper price today is therefore helpful for investors who are focused on the bigger picture.
Even though the red metal took a COVID-19-induced dive in the early spring of 2020 along with most other commodities, 2021 turned out to be a record-setting year for the copper price.
What should investors know when tracking the copper price today? Read on to find out.
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 takes the lead on the demand side too, accounting for over 40 percent of global consumption. A spike in demand from China led to a jump 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.
The following three factors have major impacts on supply and demand dynamics for copper:
1. Chinese demand
A "Chinese buying spree" in 2020 and early 2021 pushed copper prices to record-breaking highs. However, signs of slowing demand in the second half of 2021, alongside the Evergrande (HKEX:3333,OTC Pink:EGRNF) crisis, created a price environment that was marred with volatility.
Chinese demand continues to play a role in the copper price. Bloomberg recently reported, "(China's) economy continued to slow in November with car and homes sales dropping again as the housing market crisis dragged on."
Saad Rahim, chief economist at Trafigura, the largest copper trader, expects weak Chinese copper demand through to February 2022 due to continued constraints in energy supply and the housing market slowdown.
Trafigura and its chief economist have a more optimistic outlook for copper deeper into 2022 and beyond. The firm anticipates that China's property market will start to recover in Q2 2022 at the same time that the country will see a need to restock its copper inventory, which has fallen to low levels in recent months.
China's copper imports were down 21 percent year-on-year in the first 10 months of 2021, coming in at 4.43 million tonnes, reported Reuters.
Long term, 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.
2. Mine production
Mine disruptions are another important influence on the copper price today.
Typically, mining disruptions for copper are attributed to permitting or labor disputes, such as when BHP's (NYSE:BHP,ASX:BHP,LSE:BHP) Escondida mine in Chile faced a labor strike early in 2017 that halted production for several weeks, or when Freeport-McMoran's (NYSE:FCX) Grasberg mine in Indonesia faced disruptions during a mining permit dispute with Indonesia's government.
In 2020, the main cause for mine disruptions was the operational shutdowns resulting from the COVID-19 pandemic. Copper-mining operations in Chile, Peru and Mexico experienced the worst of it.
Disruptions to copper mining eased somewhat in 2021, and the International Copper Study Group (ICSG) projects that copper mine production may increase by about 2.1 percent for the year. The ICSG notes that, going forward, mine output in 2022 is expected to increase by 3.9 percent, "supported by the ramp-up of recently commissioned mines and expansions as well as the planned start-up of some large projects."
3. Inventory fluctuations
Rising copper inventories can weigh down the price of the metal, while falling inventories can boost the copper price. Declining inventories over the past few years have helped lift copper prices, with Shanghai Futures Exchange (ShFE) and London Metal Exchange (LME) inventories both experiencing significant drops. The declines in these major stockpiles have sparked a rise in demand for scrap copper.
How much should investors pay attention to copper stockpiles? Speaking to Reuters, Robin Bhar, head of metals research at Societe Generale (OTC Pink:SCGLF,EPA:GLE), emphasized that it is 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,” Bhar explained. “But if you look at the global picture and include ShFE and Comex, you probably want to be a bit more neutral.”
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 supply disruptions and improved demand may continue to impact the market, driving prices up even more. Regardless, China will continue to be the biggest factor at play in whether copper swings up or down.
In the medium to long term, there are a few developments worth nothing that may affect the copper outlook. The US Senate passed a US$1.2 trillion infrastructure bill in November 2021, which is seen as a boon for copper demand. The electric vehicle market is also expected to raise demand for copper over the next decade.
This is an updated version of an article originally published by the Investing News Network in 2015.
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Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.
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