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Where Are Copper Prices Heading?

By Jim Williams

Asking a metal expert to predict where the price of copper will be three months from now is like asking a weathercaster in the Midwest to provide an accurate extended forecast.

You can read all of the charts, graphs and patterns, but honestly, no one can do either – unless you do the weather for a TV station in San Diego. Even then, it rains some times!

Depending on who you ask, the price of copper appears to be trending toward sunnier days, but even then…

“Nobody knows,” says weekly contributor Michael Turek, Head of the Metals Desk at NewEdge. “Any black swan event can strike at any time as we witnessed recently. Being but a simple trader I rather try to measure sentiment from what I hear and see rather than from the misguided market itself. In fact being a contrarian I will often adopt the opposite view to the market. Having said that, I believe that available supply is still more constrained than generally thought and demand is generally quite robust. Therefore, I would anticipate higher prices.”

An article posted this week on ecns.cn looks at what some are calling a change of the times in the red metal process as China’s investment in Latin America turns from just that – an investment – into actual production.

In the article, Chang Xingguo, project director of international minerals and the finance department of the China Mining Association, said China has invested in many copper and iron ore projects in Latin America since 2005, when commodity prices were high.

“Those projects will gradually start production this year,” Chang said.

Most of the investments in the region are copper mines in countries such as Peru, a major copper producer, and Brazil.

Affected by China’s economic slowdown, commodity prices, especially iron ore, have been declining in recent months. Chang said that when copper projects start operation in the next several years, China will likely have a bigger say in the international cooper market.

A senior analyst with commodity data firm CRU International Ltd. says China’s demand for iron ore, copper, aluminum and nickel will continue to increase. CRU also predicts that China’s reliance on foreign supplies of raw materials will not decline in the next 10 years. That bodes well for the copper market.

It’s hard to overstate the importance of copper prices, both to numerous industries as well as the global economy. In the U.S., demand for products made of copper, 60 percent of which is used to make wire, comes primarily from four sectors. One is construction. A second source of copper demand comes from utilities and companies that own and operate the vast transcontinental high-power lines that crisscross the nation and constitute the bulk power grid. A third source of copper demand is manufacturers of electronic products. A fourth industry that buys large amounts of copper products is the car and truck industry.

Back in January experts were talking about the gloom and doom of all commodities except one – copper! This was on the heels of the red metal dropping 12 percent from $3.72 per pound to $3.26 per pound. Many experts predicted copper would sparkle in 2014. Fast forward more than halfway into the year and after all of the ups and downs, copper still sits at $3.24 per pound to open the week.

As Michael Turek mentioned above, the experts can’t predict “any black swan event” like the probe at Qingdao Port, flooding, labor unrest or simply supply and demand issues.

We will keep our ear to the ground and see if we can keep on top of the latest news involving copper. Who knows? We may catch a ray of sunshine in the forecast!

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