Why has Copper collapsed…

and who gets hit by the crashing prices?

The crash in copper prices is the latest in a global commodities sell off, which has been highlighted by the decline in the price of oil, which is down more than 50% since June. Copper id down substantially and was don almost 7% in trading on 14 January.

copper chart

Morgan Stanley in Australia attributed the drop in copper prices to “speculation that cheaper energy costs will encourage mining companies to increase production.”  A report from Bloomberg late Tuesday said that a reduced growth forecast from the World Bank was pressuring the commodity. Bloomberg reported that in London, prices fell 8.7%.

So what do we generally use copper for, and can this indicate a general slowdown in the overall manufacturing economy?

Copper- usage

I don’t think that there is a problem with the general demand. But it may be that weak Chinese demand is the real answer to this slide as they would use copper in construction- which has slowed.

In the chart below, from Bank of America, you can see that China’s stock piles of copper have fallen substantially over the last year, and it’s clear based on copper’s price that the country isn’t buying more to restock.

chinese copper demand collapse

Overall, the Chinese economy is going through a massive slow down as the government tries to transition from an investment based economy, to a consumption based economy. That means less building and infrastructure development in general. In this case, that probably also means Chinese copper demand isn’t coming back any time soon.

So which countries economies are going to be hit by this slump in demand and consequent slump in copper pricing?

Chile is the biggest single producer of the metal. Africa and Peru have been stepping up their production over the last several years as well:

copper supply

And which countries are set t benefit from this reduction in pricing

China, with its huge manufacturing sector, is by far the biggest consumer of copper, and Morgan Stanley notes that 70% of copper used in China is imported. Manufacturing industries in Europe and the US also account for a large part of copper consumption:

copper demand

2 Replies to “Why has Copper collapsed…”

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