While most investors have been paying attention either to the stock market, the general state of the economy, or even the exciting cryptocurrency market, it’s easier to gloss over the less-exciting areas. One of these is commodities, with many having seen startling price increases over the past few months. One specific commodity, copper, has seen its price surging to record highs over recent weeks.
Copper prices have always been seen as a proxy for economic growth, especially in the Asian markets. As an important material in manufacturing, economists often look to copper prices as a “canary-in-the-coalmine” when it comes to possible market crashes (or bull markets) in the future. In that regard, coppers prices are exhibiting very bullish signs, with prices now having shot up to $10,470 per ton for futures contracts.
The last time prices were anywhere near this high was back in 2011. Since then, copper has gone up and down a lot but has surged in 2021. Copper is used for a variety of things. This includes manufacturing but also as a material in green energy industries. With Biden having introduced a $1.9 trillion infrastructure plan which also calls for the inclusion of over 500,000 EV charging stations, demand for copper is expected to go up even more thanks to this.
Chile, the world’s largest copper producer, also announced that it would be introducing progressive taxes on copper sales. If this happens, it could result in a shortage of investment into the country as higher copper sales taxes eat up mining businesses’ desire to expand. That means that fewer copper mines will be set up in the country, resulting in less supply in the long term. While that may or may not be good news, for speculators, it’s another bullish sign that copper prices will keep going up.
“The copper market as it currently stands is not prepared for this demand environment, said analysts at Goldman Sachs in a statement. “It’s hard to foresee copper prices turning around amid the current bullish atmosphere,” added another analyst, Ji Xianfei, in a statement with Bloomberg. Many executives have also said that copper prices need to get much higher, around $15,000 per ton before more investment will take place in Chile, thanks to these new proposed laws.
The biggest risk to high copper prices comes from China. As the world’s largest consumer, a sudden decrease in manufacturing output, let a lot a major crash, would send copper demand and prices plummeting. Although that seems quite unlikely right now, it’s always something that copper traders are keeping a close eye out for.
Other commodities have been skyrocketing as well. One of which is lumber, which is also sitting at a record high as well. Strong demand for housing projects has helped push up lumber prices to more than four times their usual rate. Although investors tend to watch the inflation rate and other proxies like the 10-Year Treasury yields, sometimes other asset classes feel the impacts of an inflationary trend long before the U.S. dollar does. Some commodities certainly fall into that camp. Keep that in mind.