Copper closed at $2.73 per pound on February 22, 2017. So far, copper has risen 9.6% in 2017. Before that, in 2016, copper prices rose 17.4%, ending a five-year price drought.
Copper has been on a losing streak since 2011. Before 2016, LME (London Metal Exchange) copper prices fell every year since 2011. Only in 2012 did copper hold steady, closing roughly flat compared to the previous year.
Now let’s look at the various factors that are supporting copper prices.
- The copper supply has been hit due to issues at BHP Billiton’s (BHP) Escondida mine and Freeport-McMoRan’s (FCX) Grasberg mine (RIO). Since supplies from the world’s two largest copper mines have been affected, copper prices are rising.
- Higher energy prices are also boosting copper prices. Energy prices also impact other commodities (DBC). Historically, there hasn’t been much correlation between copper prices and energy prices. However, copper and Brent crude oil have had a much higher correlation in the last couple of years, as you can see in the above graph.
- There has been a broad-based rally in industrial metals this year. Aluminum and iron ore are trading with decent yearly gains. Positive sentiments in the metals and mining space (SCCO) are also supporting copper prices.
To sum it up, several key fundamentals and sentimental factors are supporting copper prices. Supply issues could push the copper markets into a supply deficit this year. We’ll look at the copper market balance later in this series. But before that, let’s look at the recent trend in Chinese copper imports in the next part of this series.