If you’ve been watching copper prices recently, you’ve experienced the same ups and downs as everyone else.
Copper prices were generally stable for years but took a wild turn toward the end of 2019. Since then, they have ebbed and flowed as the global market tries to stabilize, leaving companies, countries, and investors scrambling.
But why are copper prices fluctuating? More importantly, what is causing prices to buck so wildly?
When we look at all the factors determining copper prices, we can’t attribute it to one cause.
Financial experts use the term “Dr. Copper” to describe the metal because its price can indicate economic health. Many industries, including construction, utilities, vehicle production, and electronics, use copper during production and thrive when the economy is good.
The economy plays a massive role across every commodity and industry. When times are good, demand soars, leading to higher prices. When signs of weakness arise, the opposite occurs, sending prices tumbling.
But supply and demand metrics are only the beginning. Like other critical minerals, copper is subjected to global politics, investor influence, and external forces beyond everyone’s control.
Copper supplies encompass everything from raw materials to processed ore, finished products, and scrap.
In 2023, United States mines produced 1.1 million tons of recoverable copper content. Although it sounds like a lot, last year’s production was down 11% from 2022 and is a five-year low.
The U.S.’s bumpy production mirrors global outputs, which remained flat compared to 2022. While copper production hasn’t shrunk, and refineries increased output in 2023, global demand is up.
“Late last year, the big forecasters were saying 2024 is going to be a year of excess, and we’re not seeing that now,” Devon Rush with SDI LaFarga COPPERWORKS said. “Those forecasts have been revised and we’re in a deficit right now. The mines have had a slow start from a production standpoint… that was capacity that was taken out of the market.”
Mine closures and underperformance are putting a strain on current supplies, forcing the industry to find creative solutions to address a looming problem.
The obvious solution is to open more copper mines. Although it’s a simple solution, opening and expanding mines could take more than a decade, with potentially long-term delays.
Permitting alone takes years because mines need approval from local, state, and federal governments. Environmental impact statements must cover every foreseeable concern, including water, air, and waste by-product plans.
Companies also need buy-in from local communities and/or Native American tribes before anything can happen. According to the International Council on Mining and Metals (ICMM), conflicts between mining companies and communities have grown dramatically. In 2002, only 10 conflicts were recorded between mining companies and communities. By 2015, the ICMM recorded 104 incidents.
Infrastructure is also a hurdle. New roads are needed to move ore from the mine, and mines are generally away from populated areas, meaning communities near the mine will have to expand to support an influx of people.
Copper is infinitely recyclable, so we can use it repeatedly without losing quality.
According to data from the International Copper Study Group, its 40 member nations produced 4.55 million metric tons of recycled copper in 2023. That was up nearly 10% compared to 2022 and made up about 17% of global copper output. The U.S. played a large part, producing about 787k metric tons of recycled copper in 2023.
Copper recycling is critical for many countries because it’s less environmentally damaging than new mines. Recycling can also recover other high-value metals like gold, silver, nickel, and zinc from products like EVs and electronics.
The only downside is copper products stay in use for decades, limiting recycling opportunities.
Copper demand closely aligned with supply through 2019 but tanked following the COVID shutdowns.
Months later, manufacturers and producers got back onto their feet, causing demand to soar. Copper runs caused prices to spike, hitting highs in May 2021 and in March/April 2022.
Prices have since stabilized but remain higher than before the pandemic.
Renewable energy is great, but it requires a LOT of copper.
For example, electric vehicles require about 2.5 times more copper than standard gas-powered ones. Additionally, when new renewable energy sources come online, they require electrical grid expansion, pushing demand even higher.
“It becomes a situation of almost national security,” Rush said. “Our climate goals, our electrification goals… do you want to be dependent on copper coming from somewhere else to reach those? There are a lot of plates up in the air, and you’re trying to figure out what this all means for your business and your customers.”
Green energy is also making global electrification possible. Countries are developing robust electrical grids powered by wind and solar, though regions like sub-Saharan Africa still have unelectrified areas that will become focal points later.
Worldwide population growth will continue straining aging and unreliable grids. Connecting more people to the grid requires more transmission lines, updated grid technology, and ways to develop microgrids – and they all need copper.
And just when you thought copper applications stopped at electrical uses, think again. We use copper in everything from plumbing and machinery parts to alloy production, increasing demand.
“Part of the market sentiment with copper… is the future optimism of all the electrification trends, especially here in the United States,” Rush said. “There’s a lot of nearshoring going on, and what does that look like? It’s auto manufacturing, it’s manufacturing for batter plants. It’s microchips and computer components and chip components. It’s manufacturing for data centers, all of which are going to be extremely copper intensive. There’s funding being allocated to repair aging infrastructure and upgrade some of that.”
Despite more need, there is plenty of copper left to mine. Unfortunately, it could take decades to discover, mine, and process any ore.
Beyond simply having enough material, myriad other factors affect how copper prices behave.
Companies and countries buy copper on the global market using the U.S. dollar.
When other currencies weaken or strengthen against the dollar, it impacts copper pricing and production. Let’s say the dollar gets stronger – prices fall, making imports more expensive. If the opposite happens and the dollar weakens, copper prices rise. This is because companies can afford to buy more using their currencies.
Prices generally rise when the economy is good. When the economy is booming, construction, automotive, and manufacturing companies buy more materials. Companies may also take on capital investments and increase production, further stressing the need for materials.
If good economies raise prices, then the opposite is also true. China, for example, is the world’s largest copper consumer, using more than half of all refined materials. If Chinese demand drops for any reason, so do global prices.
“China has a strong influence on the price of copper,” Rush explained. “Earlier this year when copper pricing dipped down, it was during Chinese New Year. It slowed production and caused inventories to go up, so there’s a little bit of a supply and demand dynamic there.”
Global economies and partnerships can drastically impact pricing. Stronger economies drive material prices higher as their industries demand more materials. When the tide turns and the economic fever fades, prices slump based on lower demand.
We saw both sides of the pricing mechanics working during the COVID-19 pandemic. When the global economy slowed in late 2019 and early 2020, copper prices plummeted due to manufacturing downturns and a lack of construction projects. As those industries, and many others, recovered over the next year, copper prices hit record highs because the global community was clamoring for the same finite material stockpile.
The same phenomenon could be seen with other materials, like lumber, and even in the cost of freight shipping, as suppliers wrestled with a recovering supply chain.
Political tension comes in many forms but has comparable results.
Worker strikes, tariffs, and unwieldy regulations can quickly derail copper production. When strikes occur, production or processing stops immediately, creating a ripple effect throughout the supply chain. If it lasts long enough, supplies dwindle, and prices soar.
New government regulations can have similar results to a strike but are much longer-term. Let’s say we enact new public safety and environmental regulations. Depending on how they affect mining companies, there could be production slowdowns, delayed openings, or mine closures.
The opposite is also true. Streamlined regulations in mining-friendly states and countries can speed up the mine opening process and increase production, ultimately reducing prices by adding supply.
Tariffs and taxes can be helpful or harmful, depending on who you are. Trade disputes between countries sometimes result in tariffs or duties levied against final products and materials. Tariffs are taxes imposed on imports to protect countries from unfair trade practices and promote domestic producers.
So, what happens when we apply tariffs to a product? The imported product becomes more expensive, potentially turning off buyers in the importing country. Companies in importer countries will face less competition for their products, allowing them opportunities to expand. Unfortunately, companies in the exporting country may see fewer exports because of the added costs.
Ultimately, tariffs skew the tables in one country’s favor but create tension between both.
Money often speaks volumes.
With a few words, investors can dramatically and quickly change the course of stocks and even COMEX metals. Influential investors’ feelings can change prices, especially when their speculation is linked to future supply and demand trends. Bullish investors may buy copper futures contracts when the economy is strong, betting on continued growth. Those buys cause copper prices to spike in the short term.
Investors may sell their contracts if the economy slows, forcing copper prices downward. Similar selloffs could occur when there’s fear of excess surpluses or even a downturn in specific industries, like renewable energy.
Investors may have influence over copper pricing, but they don’t have direct control.
Pricing is largely dependent on supply and demand. When companies invest in new equipment, mining activities, and other technology, the goal is to increase production and processing capacity. In turn, it increases the available copper supply, pushing down prices.
The same can be said for companies closing mines or canceling new operations. When this happens, prospective copper supplies fall compared to increasing demand, driving up prices.
Whenever supply and demand figures aren’t in sync, copper prices fluctuate to reflect the situation.
On occasion, companies in an industry will band together to influence pricing by producing more or less material.
Recently, Chinese smelters agreed to cut production at their processing plants. Only a couple of years ago, those same smelters were processing extra copper ore to meet anticipated demand following the COVID-19 pandemic. China now lacks a steady stream of raw materials, so they’re reducing production until they can source more raw materials.
As expected, the move reduced the supply of finished copper goods, causing prices to rise.
Like the wind, market factors seem to change in an instant.
Supply and demand are crucial economic factors affecting copper prices, but it’s much more nuanced than that. Staying in front of price changes is tough, especially when everyone wants a competitive advantage. Like the butterfly effect, one minor change can cause supply chain managers headaches for months or years.
Simply put, no one is a fortune teller and can predict demand. With that said, companies can minimize losses and take advantage of dips to keep goods and services moving smoothly.
All it takes is a keen eye.
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