Copper is one of the oldest, most-used metals in the industrial world, having been used as a form of currency for more than 10,000 years. Today, the metal remains of importance due to its resilience to heat and rust. It is used as a key base material for the construction and electronics sectors, specifically, in wiring and piping, and in heating and cooling equipment.
In the financial world, traders always watch the movement of copper prices. Copper news and prices are marked by volatility, which is why traders had to be armed with knowledge on the factors that drive copper prices in order to make educated forecasts and investment decisions.
One of the things that determine the prices of copper is demand from emerging markets. The urbanization of such markets, as in the case of China and India, resulted in a surge of copper demand in recent years. Now that more areas in the world are becoming part of this group, there is more demand for new housing, transportation means and added infrastructure.
China has been adding more infrastructure in the past few years, making it a top consumer of copper. This explains why the Chinese economy plays a huge factor in prices. However, the price of copper could be affected if construction in these emerging markets slow down, which is why keeping tabs on the growth of these economies is one of the most common practices of traders or anyone invested in copper.
But just because China's industrial growth has slowed down does not mean prices will be negatively impacted. That's because, at the moment, there is no current supply shortage.
"We are at the end of the industrialization cycle in China; saturation has kicked in. Copper is one of the few commodities which still has a high producer margins. To see pain in copper production you need to see prices fall to $5,000 or below," said Chistopg Eibl, CEO at Tiberius Asset Management, in a report by Economic Times.
Another important factor that can determine the price of copper is the status of the homebuilding industry. In the United States, the homebuilding industry buys a significant amount of copper to use in wiring, pipes and for other applications when building residential compounds. A good example of how this industry affects copper prices is when builders halted operations during the past recession. The data for housing and construction usually comes in every week, keeping copper investors informed of price movements regularly.
Advancements in technology allow most materials to be replaced with better substitutes. In the case of copper, certain applications can allow the use of cheaper alternatives. An example would be how aluminum is used in power cables and electrical equipment instead of copper, as well as in the creation of car radiators and refrigeration tubes. In some cases, titanium and steel are also used in heat exchangers. This could push the copper price down with the continuing use of these alternatives, since they significantly decrease the importance of copper in these applications.
Disruptions in supply can also control the price of copper, especially since a huge chunk of the global copper supply only comes from certain regions in the world at the moment. A significant portion comes from South America, and supply disruptions in the region will ultimately affect copper prices. Employee disagreements, such as strikes, as well as natural disasters like landslides, typhoons and earthquakes in these areas are also huge factors that can regulate copper prices. The southwestern hemisphere is indeed valuable in terms of copper supply, with Chile and Peru accounting for 40 percent of the globe’s reserves, producing 40 percent of the world’s supply in a year. The United States also boasts a significant supply copper as it ranks fourth in global production.
Another area in the world that is shaping up to be a huge player in the copper industry is Russia. Amur Minerals Corporation’s (OTC:AMC) Kun-Manie nickel-copper sulphide deposit in the Russian Far East’s Amur Oblast region holds a staggering 67 million tons of nickel, copper, palladium, cobalt, and other minor minerals. Now that the company has been granted a “Detailed Exploration License,” the company is on its way to extract this supply. This could help in maintaining the price of copper, since the pipeline will be diversified.
Sources:
http://www.investing.com/analysis/4-factors-driving-the-price-of-copper-256191
http://articles.economictimes.indiatimes.com/2015-06-22/news/63708994_1_copper-production-
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