Of all the commodities on the market, copper is one of the most closely watched by economists and analysts alike. While nowhere near as valuable as gold or as popular as oil, copper has carved out a special place in the minds of many financial experts who use it as a proxy for the state of the global economy.
More specifically, higher copper prices are a sign that manufacturing demand is rising, especially in China, which is a good sign for the state of the global economy. That’s exactly what’s happened over the past couple of weeks, with copper prices hitting a two-year high as Chinese imports soared.
Copper futures for delivery in September were trading around $2.94 per pound in New York, marking the 12 consecutive price increase in a row. Back in March, prices were trading at around $2 per pound, a level not seen since the financial collapse of 2008. In just a handful of months, copper prices have recovered over 50% of there value, making the commodity one of the top-performing investments out there so far over that period of time.
The biggest driver of copper prices is industrial demand. With copper being used primarily in manufacturing in countries like China, stronger industrial demand from a recovering economy will help push prices up. China also consumes around half of all copper demand internationally, making it the largest driver of copper prices. As it turns out, new data from China has shown that copper imports jumped by 50% in June in comparison to the previous month.
At the same time, hedge funds and other investors are now more optimistic than ever when it comes to copper prices. According to new data from the Commodity Futures Trading Commission, bullishness surrounding copper prices are higher than they’ve been in years, with traders also buying up other raw materials as well, such as tin and aluminum.
This is also partially due to the coronavirus pandemic, which has ended up crippling copper production from a number of major mines in South America and elsewhere. With more outbreaks seemingly on the horizon, it’s likely that these mines won’t return to full capacity anytime soon. Rising demand, coupled with low supplies, obviously leads to higher prices. That is exactly what has happened so far and why more speculative investors remain confident that prices will continue to go up.
Even over the long run when the coronavirus isn’t a problem anymore, copper supplies are expected to be strained. There’s a serious lack of new investment in potential copper mines, and many analysts expect in the next few years there might not be enough copper being produced to meet up with demand.
“Without a significant increase in investment in new capacity, the market is poised to be materially undersupplied as long as demand continues to recover,” commented Christopher LaFemina, a mining analyst from Jefferies in a note to clients this week.
Whether these high copper prices will last is another question altogether, but for now, it’s a positive sign for investors hoping for an economic recovery. It’s also great news for various mining companies out there, such as Rio Tinto, which have large copper mining operations that can profit from these higher prices.
