Copper prices have risen in five ways

Copper prices have risen in five ways ...

Copper prices have risen 12% from their March 2020 lows, and are among the commodities that have reached unprecedented prices since the epidemic began. Several factors have contributed to the copper supply boom. Here''s an overview of each step.

Contents

  • Slow Growth in Copper Supplies
  • Energy Costs and Copper
  • The Energy Transition
  • Chinas Influence
  • The Pandemic Shift in Consumer Demand

Slow Growth in Copper Supplies

Copper mining output for copper increased considerably more slowly than for most other metals over the past three decades. Over the same period, aluminum production increased by 257%, while iron ore production increased by 257%. Since 2013, copper mining output has increased gradually, at just 1.7 percent per year, with less than half aluminums as a result of the 6.4 percent annual growth rate.

After a couple of factors, copper prices fell 58% between the beginning of 2010 and the beginning of 2016, lowering closer to the metals cost of production, thereby reducing further investment in mines and ore processing facilities. Secondly, the copper content of copper ore has remained unchanged, although the total recovered reserves of copper have remained unchanged. Energy costs are on the rise.

Energy Costs and Copper

Copper prices tend to manifest a lot of syn-movement with the price of West Texas Intermediate crude oil, as well as other crude oil benchmarks. In the past, one might have assumed that mining and refining copper was more/less expensive. That assumption is still valid today.

However, the substantial increase in oil and natural gas prices in 2021 may increase demand for copper by bolstering interest in alternative technologies such as wind, solar, batteries, and electric vehicles. This may be true in Europe and Asia, where 75% of the world population is, and where natural gas prices have risen to 8-8 percent across the United States.

Graphic: Global Production Change Since 1994

Crude Oil and Copper: A Graphic

The Energy Transition

The energy transition may generate strong demand for copper and other minerals such as lithium and cobalt. During the past decade, the cost of solar energy increased by more than 70%, while the cost of batteries decreased by a similar amount. If such statistics continue over the next few decades, it will be possible to envision a future of abundant, carbon-free energy, but a future that requires even more copper wiring.

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Ground transportation is already becoming apparent. Sales of electric vehicles (EVs) increased by 160% worldwide in 2021 to 2.6 million vehicles. Moreover, those EVs accounted for less than 4% of global vehicle sales. It may result in a potential increase in demand for copper and other materials. EVs are likely to become less expensive than combustion engines by the second half of the 2020s.

China''s fastest growth in electric vehicle demand has come from among the world''s largest economies, which increased by nearly 190% last year. China''s economy has always been the most important source of copper demand in the last two decades.

Chinas Influence

Each year, China purchases approximately 40%-50% of the newly mined copper, while some of it is used domestically. Both the current and future price of copper and copper prices have been significantly increased, according to China''s official GDP. This particular measure has been a much stronger indicator of demand for copper and other commodities than China''s official GDP. Services and government expenditure have also been less sensitive to raw materials.

Correlation Between GDP and "Li Keqiang" Growth Rates and Price of COMEX High Grade Copper

China''s industrial growth has slowed significantly in the second half of 2020 and the first half of 2021, despite China''s industrial growth being slowing significantly. Copper prices have traded sideways for several months before resuming a relatively slow increase in the last few months. Russia produced 850,000 tons of copper in 2021, roughly 5% of the world''s total.

While China''s economy is still growing, it is experiencing several flaws, including those related to higher raw materials prices, reduced housing rates, reduced export growth, and higher corporate bond yields. However, if copper prices continue to rise, it might increase the risk of a higher price tag later this year or in 2023. However, the aforementioned energy transition may be the reason why.

The Pandemic Shift in Consumer Demand

Consumers in the United States and around the world were switching to buying more manufactured goods, including consumer electronics and other items that contain significant copper content.

Most of the world is returning to a new beginning of life as usual; in most parts of the world, consumers appear to be shifting their spending back towards experiences and away from purchases of manufactured goods. This may limit copper demand and may also hinder export growth in China in the long term.

At OpenMarkets, you can find out more about these topics.

Contents

  • Slow Growth in Copper Supplies
  • Energy Costs and Copper
  • The Energy Transition
  • Chinas Influence
  • The Pandemic Shift in Consumer Demand

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