Copper prices have been strong this year. Copper has gained 26.8% so far in 2017, based on November 27 closing prices, and has added to its 2016 gains. Copper gained 17.4% last year, ending its five-year drought. Notably, copper was a relative underperformer in the first half of the year in the broader base metals space (GLEN-L)(BHP). However, copper has been quite strong since July. In this part of our series, we’ll look at some of the factors that are supporting copper prices this year.
- A weaker US dollar has supported commodity prices (ANTO)(SCCO). Most commodities, including copper, have a negative correlation with the greenback. Since most commodities are priced in the US dollar, a weaker dollar makes them cheaper in other currencies.
- Stability in energy prices is also supporting copper prices. Stable energy prices have improved commodity market sentiment.
- Copper has also received a boost from better-than-expected Chinese demand. Although China’s October economic indicators—including fixed asset investment, industrial production, and retail sales—disappointed markets, the country’s economic activity has been generally better than expected this year. Global growth has also supported copper prices. Notably, copper prices tend to be sensitive to global macroeconomic activity.
- Markets seem to have finally factored copper’s long-term fundamentals into pricing copper. While copper demand is expected to rise in the coming years on the back of global growth and shift to electric cars, supply might not keep pace. Most market observers see copper markets heading to a supply deficit by the end of this decade.
In the next article, we’ll look at Freeport-McMoRan’s (FCX) fundamental drivers.