Copper

Copper

Copper is a reddish/gold metal, which is relatively abundant on Earth. The physical and chemical characteristics of this metal make it one of the most needed commodities for various modern industries.

Copper is malleable and ductile. It is an excellent conductor of electricity (though it is not up to par with Silver and Gold in this regard). Due to this fact, most of the global supply is used by the electrical industry. Some 65% of all copper goes into electrical installations. According to the Copper Development Association, 25% of it sees industrial use and the remaining 10% is used in transportation and other verticals. Some copper derivatives, such as copper sulfate are used in agriculture.

Copper is closely linked to the concept of Doctor Copper. Doctor Copper is a fictitious “market analyst”, who can foretell economic cycles with amazing accuracy.

Doctor Copper’s “skills” stem from the widespread use of the base metal in industry. When copper prices drop, economic slowdown is on the horizon. When the prices go up, it means the industry has a healthy appetite for the metal, which it needs to fuel its growth.

With that in mind, copper price can indeed be used as a sort of barometer, giving readings on the health of the global economy.

One interesting fact about copper is that while mankind has been using it for thousands of years, it continues to find utility in new technologies.

What Drives the Price of Copper?

Behind just aluminum and iron, copper is the third most used metal in the world. As such, there is obviously great demand for it throughout the global economy. To gain a better understanding of price movements, this aspect needs to be broken down further. Also, there are a number of other factors impacting price movements.

– The ability of producers to extract and to deliver the metal where needed.

– Interest rates

– Economic growth

– Substitute goods: availability, production, transportation etc.

– Political factors: possible embargoes etc.

The housing industry is beyond doubt one of the top consumers of copper. In every modern home, there is plenty of copper in the shape of wiring, plumbing etc. When there is a downturn affecting the housing sector, copper prices always suffer.

As far as substitute metals go, aluminum, lead, iron and nickel all need to be considered. If copper prices spike too high, these alternatives become more attractive and more and more manufacturers begin using them instead of copper in their products.

Global copper production and consumption are also price-moving factors. A large portion of the world’s copper comes from a handful of South American countries, such as Chile and Peru. If such countries are rocked by political strife, a copper price-spike may be in the books.

The largest consumers of copper in the world are the US and China. These two countries drive the bulk of the demand, so the state of their economies also has an impact on copper prices.

Copper trading through hedge funds has emerged as a global price-mover as well. Large futures purchases/sales made by such funds can indeed move the needle one way or the other.

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