Copper

by Admin
Updated: July 22, 2020

The price of copper works as a macroeconomic indicator reflecting manufacturing health

Unlike precious metals, especially gold, copper is a widely used metal. Copper ores are abundant (large deposits are found mainly in South America, North America, and China) so the price of copper is mainly dependent on demand.

However, there are two stages: Extraction (mining) - which is relatively cheap - and smelting - which requires significant amounts of energy. This means the price of copper is also affected by the relevant price of energy (e.g. the price of oil) and top producers of metallic copper include countries that specialize in smelting (Japan and India).

Because of copper’s close correlation with manufacturing activity it is sometimes called Doctor Copper as if it were an authority figure with a PhD in economics.

Copper’s limited chemical reactivity, it’s electrical & thermal conductivity and it’s malleability give it a broad range of industrial applications: If you’re manufacturing something, you’ll probably be using some copper.

Copper price behavior

Emerging markets and housing growth drive increasing demand for copper. But whenever there is a recession, overall demand for copper (like many things) drops dramatically. We can also see that the price of copper rises dramatically just before it crashes:

Copper Prices, Log Scale Historical Chart. Source: Macrotrends

This chart shows the price of copper per pound on a logarithmic scale. Periods of recession are colored gray.

The chart shows an unprecedented recovery following the 2008 recession. This occurred as a result of China stepping up its involvement with copper as its economy expanded.

Copper is now primarily an indicator of China’s economic health and this can be seen clearly by it’s 2020 performance (COVID-19 lockdown and subsequent recovery).

Copper Futures, 2020, Jan-Jul

The future of copper futures

Copper futures trade up to 5 years out and as a relatively cheap commodity with limited concerns over supply it has scope to fluctuate dramatically in price.

China’s growing domestic demand coupled with its interest in emerging markets in Africa could see the price of copper go up & up over the next few years.

More info

“Using Base Metals As An Economic Indicator” at investopedia.com.

“What factors affect the price of copper?” at investopedia.com.

“Copper Is Losing Its Predictive Power In US Markets” at nasdaq.com.

“Welcome to the age of copper [2020]” at cnbc.com.

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