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, both 2021 and 2022 turned out to be record-setting years for the copper price.
What should investors know when tracking the copper price today? The following three factors have major impacts on supply and demand dynamics. Read on to find out more.
1. How does China affect copper demand?
While China is a major part of the copper story, it isn’t the top producer of the red metal. Chile is the world’s number one copper producer, with Peru, the Democratic Republic of Congo, China and the US rounding out the top five.
However, China takes the lead on the demand side, accounting for about 55 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. China has also driven the price comeback in the past few years.
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) crisis, created a price environment that was marred with volatility. At the time, Bloomberg reported, “(China’s) economy continued to slow in November (2021) with car and homes sales dropping again as the housing market crisis dragged on.”
Russia’s invasion of Ukraine in February 2022 proved price positive for a wide basket of commodities, copper included. However, China’s return to stringent COVID-19 lockdown measures cuffed copper’s momentum compared to base metals such as aluminum.
“The biggest surprise has been that copper prices have not changed much in Q1, while many other commodities have shot higher in response to the Russian invasion of Ukraine,” Dan Smith of AMT, a London Metal Exchange metals dealer, said back in March 2022. “Copper rose by 6 percent, but this is compared to a 24 percent jump in the aluminum price.”
However, copper still managed to hit a record-high price of US$5.02 per pound on March 6, 2022.
Moving into H2, softer demand from China’s real estate sector continued to weigh on the market, placing downward pressure on copper prices. While copper’s role in the green energy sector serves as a buoy for the red metal, it still represents a much smaller demand segment than real estate. Around 23 percent of China’s copper end use comes from civil and building construction.
Looking forward into 2023 and beyond, Chinese demand will continue to play a role in the copper price. For one, the country’s Made in China 2025 program 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.
China’s copper imports were up by 8 percent year-on-year in 2022, coming in at 25.27 million metric tons, as per Reuters. In the first two months of 2023, copper imports to the country were down by 9.3 percent. In March, Lynn Zhao, a Shanghai-based commodities strategist at Macquarie, said she was expecting full-year refined copper demand from China to grow by about 3 percent in 2023.
2. How does mine production affect copper supply?
Mine disruptions are another important influence on the copper price today. Typically, these 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 the country’s government.
In 2020 and 2021, 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.
In 2022, mine workers at Chile’s Escondida and Antofagasta threatened to strike over safe labor conditions, while in Peru protests disrupted work at mines, including Glencore’s (LSE:GLEN,OTC Pink:GLCNF) Antapaccay, MMG’s (HKEX:1208,OTC Pink:MMLTF) Las Bambas and Hudbay Minerals’ (TSX:HBM,NYSE:HBM) Constancia.
Another issue facing mine production is the growing significance of the Democratic Republic of Congo in global mine production, a nation fraught with instability. “The Democratic Republic of Congo is a particular concern as the country now accounts for 11 percent of global mine output, and there are lots of projects in the pipeline in the country that are due to come onstream in 2024 and 2025,” Dan Smith, head of research at Amalgamated Metal Trading, explained.
Even with these factors, copper mine production increased by 3.77 percent in 2022 over the previous year. The International Copper Study Group expects mine output in 2023 to increase by 5.3 percent.
3. How do inventory levels affect copper supply?
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, also known as secondary copper.
How much should investors pay attention to copper stockpiles? Speaking to Reuters, Robin Bhar, head of metals research at Société Générale (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.”
What’s the outlook for copper?
Copper currently has many factors working in its favor. After enjoying a boost in 2022, 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 couple developments worth nothing that may affect the copper outlook. The US Inflation Reduction Act is seen as a boon for copper demand, and the electric vehicle market is also expected to raise demand.
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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