The Wild & Wacky Copper Market: Yet Another Fork in the Road?

Whenever copper makes a bit of a sustained move, copperheads start wondering if pricing is finally heading back toward “respectability.” While the 15-cent/pound increase over the past month to around $2.25 (at press-time) isn’t exactly a wild breakout, some short- and long-term market conditions may be setting up to support an increase, according to several metals analysts.

On the macroeconomic front, copper bulls point to the fact that many economists expect business conditions in the second half of 2016, to be better than the previous six months and that 2017 should be stronger than this year. As you drill down into the long-term economic drivers that will shape the copper market over the next few years, at least one is signaling a price increase.
Some analysts say the dearth of new production capacity at copper mines will eventually cause a shortage of the red metal. A recent Bloomberg report said the London-based CRU consulting group, which focuses on the metals markets, found that only six new copper projects will be ready to come online by 2020, with two of those subject to delays. And according to data from Bloomberg’s Intelligence  unit, “Capital spending by 35 major producers will shrink to about $41 billion next year, down from $104 billion in 2013, and mine output last year tumbled by more than 20 percent. Even with a project pipeline with forecast capital expenditure of about $149.4 billion, according to the data, the mining industry faces challenges to deliver new supply in time to meet the deficit.”

In addition to the longer term supply issue, a debate is raging in metals markets over whether or not demand will pick up in China. The country,  which accounts for an estimated 40% of the world’s copper market, may see an economic boost from the Chinese government’s proposed stimulus package.

John Gross, publisher of the Copper Journal, worked for decades in the wire and cable industry and has tracked copper pricing for decades. He has one of the more informed and whimisical perspectives on copper prices that you will find, and had this to say about the most recent increase in copper prices:  “The quick and most accurate answer is that we don’t know why. Maybe it is because of the decline of inventories; or perhaps it is the result of production cuts, or possibly it is due to nothing more than the stars coming into favorable alignment.

“The fact is, one can spend hours, days, or weeks examining facts, figures, fundamental market structures, economic, financial and political events, and not come to a reasonable conclusion as to why markets do what they do.

“Interestingly though, in the end, we don’t have to know the reasons why, all we really have to do is study, and be guided by what the charts are telling us. As they say – Keep It Simple.”