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Copper: The Forgotten Commodity

 3 min read / 

Oil has had most of the limelight for obvious reasons within the commodities sphere. However, copper is one of the most important raw materials, with uses ranging from power lines, building construction and general wiring. Like oil, copper’s price has plummeted in recent months. This is primarily due to the slowing demand from the largest importer of the metal – China, which accounts for 40% of worldwide consumption.

China’s economic growth slowed from 7.7% (2013) to 7.4% (2014) which is an explanation for the slowing demand. Specifically, demand in China’s real estate market has weakened to a five year low, a modest 10.5% rate of growth. Naturally, this means that copper’s demand has fallen, as it is needed for construction. The reason behind such a slowdown is due to the change in direction of the government. Rather than being an investment-based economy, the Chinese government want the country to become more consumption reliant. Hence there are less building projects and investment into the economy overall.

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The graph above shows the price of LME copper from the beginning of 2014 to 2015. It is clear to see a huge fall in price from approximately $7300 to $5600 per tonne. Banks such as Goldman Sachs, have recently confirmed their beliefs that prices will continue to fall, with a new forecast of $5,542. So this may be the end of the demise in copper prices, especially with predictions that:

The price of copper could rise in price to $5,825, $7,000, $8,000 in 2016, 2017 and 2018 respectively.

It may seem as though we are reaching the lowest price levels for copper with a strong recovery in the near future. With such great prospects, copper seems like an ideal commodity to invest in. However, there are some strong reasons not to do so, especially with the current volatility. It is at its lowest price since 2002 and, of course, there is still scope for a greater collapse in its price as the market continues to find a bottom. Additionally, it is important to note that oil has a huge influence in the commodity market and its continuing fall in price could drag copper down too. Perhaps copper may not return to 2014 levels in the near future; just as with oil prices, a new equilibrium is likely to be formed in the market and prices will fluctuate around that as normal. China and India’s markets will have a strong influence too, but it is just a matter of time before we know the condition of the copper market post-oil crash.

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