What Factors Affect the Price of Copper? – Copper Futures Trading

By Advisorymandi
7-December-2018 7:16:49 AM
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Whenever someone talks about the factors affecting the commodity prices, the very first thing comes in everyone’s mind is “Supply & Demand”. Whether we are talking about the factors affecting the price of copper or lead or any other commodity, the supply and demand is the biggest driver of copper price in the commodity market. But, it is quite obvious! The main question is: what are the other factors that affect the price of copper?

Copper is the non-precious industrial metal which has many uses in a diverse array of industries. Copper is considered as an important commodity which tells a lot about country’s economic health. That’s why it is advisable to keep tabs on the factors that drive the price of copper.

 

What Factors Affect the Price of Copper?

There are several factors that affect the price of copper which are as follows:

 

Emerging Markets Demand

Like we said earlier, the supply and demand are one of the most influencing factors that affect the copper price very much. Usually, the demand for copper comes from developed countries. And as of now the no. of developing countries are outweighing the no. of developed countries. It clearly indicates that the global demand for copper is going to rise in emerging markets.

Speaking of emerging markets, if we take at a look at India, currently we have only 3 major players dominating in the Indian Copper Industry – Hindustan Copper Limited (HCL) in public sector, Sterlite Industries (Vedanta Company) & Hindalco Industries in private sector. Copper has been contributing since the dawn of civilization. Now we need this metal even more.

As the populations move into the cities, the need for new transportation, residential housing, and other constructions has climbed a lot. If a country faces a slow-down in its construction, it will affect the price of copper. This, the slowdown in economic growth of emerging countries can have a bad impact on the copper prices.

 

Demand in Homebuilding Industry

There is a big demand of Copper in U.S homebuilding industry where copper used in electrical wiring, roofing, pipes, insulation and other components of residential buildings. Thus, factors that affect the U.S homebuilding industry such as non-farm payrolls, US GDP, and demographics play a vital role in the fluctuation of copper prices. So, whoever is trading in Copper Futures should pay close attention to the trends in the market for clues about futures copper prices.

 

 

Supply Disruptions

Supply disruption is one of the major factors that drive the price of copper very much. For instance, in India, we have only 3 major players who are dominating in Indian copper industry. If anyone of them goes onto strike, supply disruptions in the region can have a major bearing on global prices. To better understand this, let’s take an example of South America. It is because a large portion of global supplies comes from South America. Strikes are very common at major copper producing mines and natural disasters also occur from time-to-time. So, if there is the disruption in the supplies of Southwestern Hemisphere – Chile & Peru, there could be a shortage of nearly 40% in the global supply of copper.

Copper producing regions are mostly influenced by political, environmental, and labor issues. Any disturbance in such regions could be catastrophic in a relation to copper supply.

 

Competitive Technologies

There is no commodity left out from intense competition. Nowadays many commodities are challenged and affected due to the substitutes. Copper is also facing the competition in the market like many other commodities. To best understand this, let’s talk about the telecommunication industry which solely depends upon the copper for raw material but the recent promotion and application of fiber-optic technology has challenged the status of copper.

Not just commodity but the equities as well! There is no industry or sector left which haven’t faced any competition, and copper is no exception. As prices climb the new heights, investors will start seeking cheaper substitutions, if available. Currently, aluminum is challenging copper in power cables, refrigeration, and electrical equipment etc.

 

Chinese Demand for Copper

Chinese demand for copper is just as high as the demand for copper in the United States. So, it is also important to look out for the Chinese demand for copper because the country is capable of single-handedly moves the price of copper futures upward or downward. To simply understand the effect of Chinese demand on copper prices, let’s compare China to the whole North America.

According to Oracle Mining Corp, North American consumers use about 10kg of copper per capita however in China, despite the huge economic growth in the last few years, the copper consumption is near 5.4kg per capita. It may seem that China consumes less copper than America. But, that is not for long! The way we see it, there is a huge room for improvement in the consumption of copper from China.

Besides, the population of China is a lot more than North America. In near future, the demand for Copper in China would move significantly.

 

Fluctuation in International Prices

Like other internationally traded commodities copper is priced in US dollars. So, the fluctuation in exchange rates of USD-INR affects the copper prices. If the value of Rupee increases, the copper trader would’ve to pay less to buy a given amount of the copper or other commodities.

In short, the Copper has a relatively high inverse correlation against the dollar.

 

Economic Events & Activities

Like we mentioned earlier, the copper commodity plays a vital role in the overall health of the country’s economy. So, any major or minor economic event related to the commodity market such as the construction of new production facilities, unexpected closure of a mine or plant, supply disruption, natural disaster or maybe industrial restructuring could seriously move the price of copper upward or downward.

Apart from this many economic factors such as gross domestic products (GDP), Industrial Production, and much more. These are some of the key economic indicators which specifically provide crucial information on numerous commodities and industrial metals such as copper. Apart from this, there is inflation and recession, and the global financial crisis etc.

 

Hope, this article helped you the way you expected it to be. If you have any query or would like to add something then doesn’t forget to mention in the comment section below.

 

Note: All information & data provided in this article is for the educational purpose as well as to give general information on the finance & economy, not to provide any professional advice or service. Views & opinions are not biased against the company and do not affect any official policy or any other agency, an organization within the content.

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Author: Advisorymandi

AdvisoryMandi is India's most trusted Stock Market Advisory marketplace covers NSE, BSE, MCX & NCDEX. Invest with confidence and harness the power of AdvisoryMandi to make smarter investment decisions in Stocks, Indices, Commodities, Forex & IPO.

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