Why Are Copper Prices So High?

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At the end of the third quarter of 2009, copper prices were above $3 per pound, three times the price at the start of the year. The $3 price was caused by overly depressed prices from the worldwide recession, anticipation of a recovery in 2010, and huge Chinese purchases. While these were the reasons for the 2009 surge in copper prices, causes in the future could differ because many factors weigh on copper prices.

Price Trends: Long, Short and Medium Term

Copper prices are volatile. The trend of prices from 1970 to 2009 is generally down. The six-month trend is up, but the three- to five-year trend is erratic. The 2009 rise from $1 to $3 was preceded by a 2008 plunge from $4. Such upward and downward moves, by 30 percent or more within a two-year period, are not uncommon with copper prices.

Demand and Supply Factors

Commodity prices are principally determined by supply and demand. Too much supply of copper brings down prices while heavy demand brings up prices. Supply comes from inventories and production from copper mines. Demand comes from users and uses. The more volume and types of use for copper, the bigger the demand. The higher the demand and the lower the supply, the higher the price.

Users and Producers

Chile produces one-fifth of the copper produced in the world. Chile, the United States, Canada and the former USSR, account for about half of world output. The largest users are the United States, the former USSR, Japan, the United Kingdom, Germany and China. Labor negotiations, strikes and other political and economic conditions in user and producer countries are big influences on copper prices.

Uses of Copper

Copper has uses in housing and automotive applications, but the biggest market is the electrical industry where, because of its conductivity, it is used as wiring and as parts in telecommunications and electronics. Because it is corrosion-resistant, it is used in plumbing, radiators, cooking systems and solar heating. Copper is strong, ductile, malleable, is used in producing brass and bronze, and can be alloyed with silver and nickel. It is also used in jewelry and coins.

Economic Recession and Growth

Because of copper's industrial use, it is consumed mostly by developed countries. Thus, the demand for copper is affected by the general state of the world economy, and by the particular state of the automotive, housing and electrical industries. With economic slowdowns and recessions, prices soften as demand declines. Prices go up with strong economies and increased use.

Other Determinants of Price

Seasonal factors sometimes affect copper prices, as do speculators and the status of the dollar. Prices tend to be up as the housing and automotive industries gear up for their spring and summer peak production, then soften in late summer and fall. Speculators have little permanent effect on prices, but can play roles in transitory moves. Because prices of copper are dollar-denominated, a weak dollar is generally good for copper prices.

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