Copper Prices: How copper prices move up and down

The single most important ingredient determining the cost of wire and cable is the current price of copper. Copper is a commodity like any other metal therefore its price is driven up or down by a myriad of factors. This article will help explain some of the most common factors that drive copper prices and hopefully spark debate on where copper prices may be headed in future years.

First, it is good to understand a little history on the value of copper on the commodity market. Looking back at only a five year period, copper has been steadily on the climb. In March of 2003, copper was below US $1.00/lb. In March of 2008, it has climbed to almost US $4.00/lb. (www.kitcometals.com/charts/copper.html) Many analysts believe this copper pricing bubble will burst, and copper prices will fall again, but the real question is when that will happen.

The most obvious reason for the rising price for any commodity is demand. Copper is no different. A key explanation for the continuing climb in copper prices the past 5 years is the increased demand for the metal globally, specifically China. China has become the world’s faster growing country, and with that growth, their increased need for copper has come with it. China far surpasses the use of the US in copper each year. Many analysts agree that China’s performance and industrial activity are the single most important factors driving copper prices and volumes today. It is estimated that 30% of the world’s copper consumption is directly from China.

With all that said on China, it is not the only factor affecting the price of copper. The small country of Chile is by far the largest producer of copper. It has been said that copper goes as Chile goes. Chile is estimated to export about a third of the world’s copper. The largest copper mining company in the world, Codelco www.codelco.com , is located in Chile. Codelco produces close to 2 million tons of the metal each year which is 12% of the world’s new mine production. Codelco has been valued as high as 28 billion US$ by Goldman Sachs. If there is a union strike affecting the mines production in Chile, copper prices will jump as supply is weakened. A recent end to a contractor strike at Codelco’s Andina mine in 2006 caused copper prices to suddenly fall giving proof to the power these enormous mines in Chile have on copper prices globally.

Although the USA is not the world’s leading copper exporter or importer, its economy can still have a major affect on copper prices. The US does have major copper producing mines in Arizona, Montana, New Mexico and Utah as well. While this article is being written, copper has plunged to US $3.55/lb, capping its biggest weekly drop in 10 months. Many speculate this drop in copper prices is due to the slumping US economy which may lead to a global decline in demand for raw materials such as copper. This week copper is down 6.6 percent; the most since May 2007.

In summary, there are a host of variables that go into the production and price of copper. In parts of Asia and Africa copper production can be affected by political unrest, in North and South America, prices can be affected by labor unrest and the current economy of a super power such as the US can help or hurt the metal. Other factors to consider are weather as a major drought or flood hitting a mine, or the transportation routes of supplies to the mines, would create a lower copper supply and subsequently increasing the price per pound for the metal.