What Factors Affect the Price of Copper?
For over 10,000 years, copper has been utilized by humans. Initially, it was employed for coins and ornaments. Presently, copper is used in power generation and transmission, construction, factory equipment, and electronics. The extensive usage of copper means that its prices are influenced by global economic expectations. Chile, Australia, Peru, Mexico, and the U.S. are the countries with the largest copper deposits.
Copper prices are heavily tied to the global economic situation. This is because copper has extensive applications across various economic sectors, including power generation, construction, manufacturing, and electronics. Often nicknamed "Doctor Copper," this base metal is a dependable leading indicator. A rising market price indicates a robust economy, while a decline signals the opposite.
To illustrate, in March 2020, copper futures with a three-month horizon were trading at $4,731 per metric ton on the London Metal Exchange. This marked a significant decrease from the year's outset when it stood at $6,340. The sharp decline was attributed to macroeconomic factors and concerns stemming from the COVID-19 pandemic. By May 2020, copper prices had rebounded to surpass $5,200 per metric ton.
Copper's Historical Significance and Contemporary Uses
Throughout history, copper has played a vital role, with archaeological evidence suggesting its utilization by humans dating back to 10,000 years ago. In ancient western Asia, copper was employed in crafting coins and ornaments. The alloy of copper with tin gave rise to bronze, marking a transition from the Stone Age to the Bronze Age around 2500 B.C.
Today, copper maintains its significance. Renowned as the finest non-precious metal conductor of electricity, copper finds extensive applications in power cables, generators, motors, transformers, electronics, and electrical components. In residential and commercial construction, copper serves both functional and decorative purposes in pipes and wiring. Its utility extends to industrial machinery, vehicles, and coin production.
The World's Copper Reserves and Production
The world's most substantial copper deposits are concentrated in Chile, Australia, China, the Democratic Republic of Congo, Peru, Mexico, and the United States, collectively hosting approximately 65% of global copper deposits. With an impressive history of mining, roughly 700 million metric tons of copper have been extracted worldwide to date. Existing known deposits amount to approximately 2.1 billion tons, with an estimated 3.5 billion tons yet to be discovered.
Global Copper Dynamics
Copper traverses the globe in diverse forms, including copper ore, raw copper, refined copper, and copper wire. Leading the export of copper ore are Chile and Peru, with China and Japan serving as their primary buyers. Zambia, on the other hand, reigns as the chief exporter of raw copper, with China as its direct importer. The United Arab Emirates and Germany engage vigorously in exporting copper wire.
Copper is actively traded on the London Metal Exchange and COMEX, now a division within the Chicago Mercantile Exchange. Price fluctuations, to a significant extent, mirror expectations for global economic growth. At the outset of 2020, forecasts predicted a supply deficit of approximately 53,000 metric tons. However, the global economic slowdown induced by the coronavirus pandemic prompted a revision, projecting a surplus ranging from 200,000 to one million tons, underscoring copper's role as a crucial economic barometer.
In periods of elevated prices, such as in 2021, when COMEX prices surged above $4.70 per pound, users often explore alternatives, including aluminum. Aluminum can substitute for copper in various applications, including car radiators, cooling and refrigeration tubes, electrical equipment, and power cables. Optical fiber replaces copper in telecommunications equipment, while plastic supplants copper in pipes and plumbing. Moreover, the recycling of copper contributes to the global supply chain. In the United States, post-consumer scrap contributed 160,000 tons to the supply in 2019, accounting for roughly 9% of consumption.
Copper has been used for many things throughout history, including coinage, ornamentation, and, more recently, in the sectors of electricity, building, and electronics. Global expectations largely influence the copper demand and act as an economic indicator. The biggest copper deposits are found in Chile, Australia, Peru, Mexico, and the United States. So far, over 700 million metric tons of copper have been mined, with many untapped reserves still remaining. Key players in the copper trade include Chile, Peru, Zambia, China, and Japan. Economic forecasts are reflected in the price fluctuations on exchanges such as the London Metal Exchange and COMEX. During times of high prices, users may look to alternatives such as aluminum, which can be used in some applications instead of copper. Recycling, particularly in the United States, plays a significant role in the supply of copper.