Taking spot markets by storm Copper prices hit a two year high following a month-long
rally between July and August 2017. Triggered by various events in the global market the price index for the vital industrial metal took off on a steep ascent starting in May and continued northwards with minor fluctuations to cross the 6,400 per tonne mark first time
since 2015. To the astonishment of traders around the world spot prices for copper rose by 11 percent within a month going from USD 5,779 on July 10 to USD 6,416 on 10 August. In India, copper prices broke the INR 450 mark. Historically Copper has acted as a barometer to analyze the health of the global economy. Times of a financial upturn usually ushers in high copper demand and
simultaneously sends prices soaring. This trend was amply evident during the 2008 financial
crises following which copper prices slipped below USD 3,000 per tonne but rose sharply as the
economy regained its strength and crosses the USD 10,000 mark in 2011 when the global economy was bullish. Since then, however, copper prices and demand have been on a
downward spiral owing to weak economic activity and slowdown in steel markets. Speculations for 2017 were initially bearish for copper as the global economy continued to struggle amidst various geopolitical confrontations and weak markets. Global economic activity, led by China, picked up the pace by Q2 of CY 2017 and remained strong. This has also intensified trade for other
industrial commodities including steel, iron ore, coal etc.
Are prices propelled by growth forecast?
One of the key factors leading to the sudden surge in prices and demand of copper has been heightened economic activity in China which stands as the largest consumer of Copper and accounts for almost half of the total global copper use. A positive market sentiment in China
and improved growth forecast from the International Monetary Fund gives a strong indication of
economic wellbeing. Growth forecasts have played a pivotal role in determining copper prices. As
seen in 2015 when prices had hit a 9 year low in September, the International Monetary Fund had drastically reduced China’s growth forecast which ticked of a domino effect in commodity markets.
In addition to the uptrend, news of Chinese government planning to ban imports of scrap including
copper which could possibly encourage demand for imported refined copper also added fuel to the buying spree. Supply disruption Another important factor according to analysts that has triggered the recent rally is uncertainty in supply, following decline in output from mines in
Indonesia. Grasberg Copper Mine is the world’s second-largest copper mine in the world, supply disruption from Grasberg has a significant impact on global markets.
The US Federal Reserve’s decision to keep key interest rates unchanged has also had some impact on copper prices. Estimated strong Chinese demand would continue in the short term and is likely to keep prices on a slide. Low crude oil prices Copper prices ideally remain directly
proportional to crude oil as production and transport accounts for a significant component of price. Specifically, in the last 5 years, the two commodities have been fairly similar in their trends barring a sudden crash in oil prices in 2014. In 2011, Oil prices remained above the USD 100 mark copper also hit USD 10,000 per tonne but since then both these commodities
have remained on a downward spiral. However, the recent rally seems to be defying historic patterns as crude oil prices continue to remain below the USD 50 mark amidst lack of consensus
among OPEC members. This remains a strong factor that has kept copper prices from skyrocketing in an improved global economic environment.