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, accounting for over 40 percent of global demand. 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 marred with volatility.
Chinese demand continues to play a role in the copper price today. 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, the chief economist of Trafigura, the world's largest copper trader, expects weak Chinese copper demand through February 2022. Rahim's outlook is based on continued constraints in energy supply and the housing market slowdown.
Moving forward, 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 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), 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.”
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