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Investors Dump Copper As Demand Stumbles

  • Copper prices have sunk to a 16-month low.
  • Global growth is slowing for the commodity, and investors are growing increasingly pessimistic.
  • Chile, one of the world’s top copper miners, however, sees light at the end of the tunnel. 

Copper prices have long been considered a major indicator of global economic health. So when they plunged to 16-month lows on June 23, investors quickly hit the “panic button.” According to this CNN Business article, the commodity’s 11% drop over two weeks shows that global growth is slowing. However, not everyone agrees.

Chile’s Codelco Thinks Copper Prices Will Shore Up Soon

Reuters recently reported that Codelco, Chile’s state-owned copper mine, isn’t convinced of imminent doom. As the largest global producer of the metal, Codelco’s opinion carries a lot of weight. So when Chairman of the Board Maximo Pacheco confronted the issue in early June, people listened.

“We may be in temporary short-term turbulence, but what is important here are the fundamentals,” Pacheco said. “The supply-demand balance looks very favorable to those of us who have copper reserves.” Pacheco followed up his comments by mentioning that “the future looks very electric.”

He isn’t wrong. Copper is one of the most efficient conduits in the world. It, therefore, sees heavy use in renewable energy systems, including solar, thermal, hydro, and wind. With traditional energy prices reaching a fever pitch around the world, green investments are looking up.

However, this process takes time. Benchmark copper on the LME was 0.5% lower last Friday. It even managed to briefly decline to $8,122 per ton, a 25% drop from the commodity’s peak back in March. In fact, it was the lowest registered price since the middle of the pandemic.

Even so, Pacheco isn’t panicking. “In a world where copper is the conductor par excellence and where there aren’t many new deposits either, the price of copper looks very firm,” he says.

Yes, The Ukrainian War Factors into Copper Prices as Well

Investors looking for answers to the barrage of economic woes may be getting tired of hearing about Russia’s war in Ukraine. Unfortunately, there is simply no underestimating the repercussions the four-month-old war has had on copper prices.

Russia, after all, has its tentacles in dozens of industries. Everything from energy and mining to telecommunications and trade. While the country only produces about 4% of global copper output, the sanctions following its invasion of Ukraine seriously shocked the market.

Back in late February / early March, copper prices skyrocketed along with other metals. The fear was that despite its meager contribution, taking Russia out of the game would strangle post-pandemic recovery. Now that recession talk is virtually inescapable, investors are growing bearish.

But it’s not all on Russia. If you look at the five-year chart, it’s clear that investors have been riding a two-year-long wave that started when the pandemic hit. In March of 2020, prices were averaging just $2.17 per lb.

So the real question regarding copper should be: how low will it last? It’s doubtful prices could retreat to pre-pandemic levels. Still, massive drops like those seen this past week are enough to make any investor nervous.

Is Copper Really the “Crystal Ball” of Commodities?

We already mentioned that copper remains one of the biggest bellwethers for economic health. But why? Well, it’s because copper has entered a bear market preceding the past four recessions. So, all this month, analysts have weighed in regarding what this drop in copper prices means for the economy at large.

But here’s the thing: there are hundreds of so-called “recessionary markers,” and correlation vs. causation can be hard to parse out. We’ve already mentioned that the pandemic pushed commodities like copper to unprecedented highs. Following this, a natural correction could look to some like a recession.

Still, it’s compelling information. And a recession wouldn’t be surprising given the number of major factors at play. 2022 has brought us zero – COVID China policies, supply chain disruptions, and – of course – Putin’s war. It’s a lot for any market to deal with, even one as resilient as copper.

By AG Metal MIner

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