Copper Prices Jump More Than 10% After Election But Underlying Causes Unclear

Copper prices rose by more than 10% last week, regaining price levels metals investors haven’t seen since July 2015. The red metal had been lagging behind growth in other metals prices through most of this year, then jumped by more than it has since 2011.

After seeing $2.08 per pound in late October, copper prices began a gradual rise and then really took off Nov. 8, the day of the U.S. general elections, hitting $2.55 at the end of last week before settling in to hover around $2.50 most of this week.

The reasons for the jump appear to go beyond enthusiasm for an expected boost in demand after Donald Trump takes office as U.S. president in January. Although Trump’s campaign concentrated repeatedly on the need for infrastructure investment and tax and regulatory reform to revive domestic manufacturing, the share of global copper demand accounted for by U.S. economy is still small compared with the volume consumed by China.

In 2015, the U.S. accounted for about 8% of global copper demand, while China accounted for 50%. That means that a 10% rise in U.S. copper demand could be offset by a 1.5% contraction from China, according to Liberum Capital.

An article in Bloomberg noted that the increase in copper purchases during its four-day climb coincided with trading times in China, then fell during trading hours in London and New York, which suggests that speculation by China’s investors may be a significant factor — a phenomenon seen earlier in the year in iron ore and steel prices. The rise over the past month also coincides with signs of resilience in China’s economy.

Many analysts don’t expect the lift to last, based on fundamentals. Goldman raised its price outlook but was still bearish on the direction from current levels, forecasting a surplus of 400,000 metric tons in 2017.

John Gross, publisher of The Copper Journal, likewise sees the recent move as speculative. “There is no quick-and easy answer to address the near 40¢ move up over the past two weeks,” he said. “The best we can say is that after copper initially broke through resistance, more buying came in, and the buying accelerated as each previous high point was surpassed. The fundamentals have not changed in any meaningful way, and don’t warrant the move. This level of volatility is no good for any one, except for speculators who got it right.”