Industrial Production Effect on Copper Prices, Production, and Consumption

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Cryptal global

10 min readApr 15, 2023

Demand for copper has long been a credible sign of economic stability. This historic “workhorse metal” has been utilized in a wide range of industrial and household products, including solar panels, mobile phones, and appliances for air conditioning and plumbing. Due to its widespread use, demand for copper increases as businesses grow, more buildings are constructed, and more vehicles are manufactured.

Possibly this is the result of copper’s excellence as an electrical conductor among non-precious metals. Easily alloyed and twisted into wires, the red metal is widely regarded as a reliable thermal and electric conductor. Hence, it can be so extensively utilized in power lines, generators, motors, and transformers.

Not to mention that it possesses anti-microbial qualities that make it perfect for usage in medical equipment like MRI scanners, implants, and surgical robots. Copper has a wide range of applications and is crucial to the low-carbon economy of the twenty-first century, which supports estimates of great additional demand.

Because of its numerous uses across almost all economic sectors, particularly in industrial production, transmission systems, building, industrial machinery, and electronics, copper prices are strongly affected by the state of the world economy. The basic metal is widely heralded as a reputable barometer of the economy’s health to the point where it is often called Doctor Copper. A growing market price denotes robust economic growth, while a falling price signals the reverse.

The pandemic, the conflict in Ukraine, and worries of a worldwide economic downturn have all wreaked havoc on the copper markets globally over the last three years and caused significant price changes. Following pandemic record lows in April 2020, enormous rising prices ensued, which were then followed by new, rapid drops beginning in March 2022.

Contrary to the price recovery following the global financial crisis, post-pandemic price recovery was mostly fuelled by supply-side variables accounting for around one-fourth of the recovery.

Then, since March 2022, a sharp decline in economic growth around the world, the easing of supply restrictions, the shutdown of energy-intensive smelters amidst unprecedentedly high energy costs, and worries over an impending worldwide recession have all given rise to the drop in prices.

Moreover, as the transition to green energy takes place and the overall demand for commodities turns away from fossil fuels toward metals, more price fluctuations can be anticipated.

According to the World Bank, the demand for the red metal will increase by 200% globally by 2050 due to the use of copper in the production of sustainable energy sources, notably solar, wind, and geothermal power. The use of copper for energy storage, modernizing transportation infrastructure, and building infrastructures are not yet included in that amount.

The same is true for the near-term perspective, specifically for the copper price forecast in 2023, where Goldman Sachs and Bank of America both stated that a mix of short-term supply constraints and long-term demand tied to decarbonization would send copper prices north from here.

This is while, unfortunately, copper had a rough 2022 as a result of stricter U.S. fiscal policy, the power crisis brought on by Russia’s conflict in Ukraine, and China’s mix of tight Covid-19 shutdowns and a dismal real estate market.

As announced by Goldman Sachs strategists, the negative pressure in 2022 was partly caused by ongoing market forecasts for an oversupply in the copper market, prompted by predictions of weak demand amid slower worldwide growth and an increase in mining operations.

To report the latest news on copper prices, that prediction has not come true, as Goldman reported that the cathode market has continued to experience a substantial deficit (GS estimated 210 kt vs. 131 kt earlier), with worldwide available stockpiles declining to their lowest point in 14 years.

On the contrary, the excess that had previously been predicted for 2023 (169 kt surplus) has simply faded away in the most recent balance iteration (GSe 178kt deficit). Thus, economists anticipate a rebound in 2023, even though the picture for the world economy is still very unclear.

In light of the constrained market supply and high demand from the manufacturing and industrial production sectors, particularly those engaged in the development of green technologies, future copper price predictions currently tend to have a very bright sentiment.

In the final months of 2022, Goldman increased its 12-month projection to $11,000/t from $9,000/t and updated its average price projection for 2023 and 2024 to $9,750/t and $12,000/t, respectively.

Provided with the proper combination of events, copper, according to commodity experts at Bank of America, might rise to $12,000/t in the 2nd quarter of 2023. In order to prevent the U.S. dollar’s value from rising further and to maintain demand as the projected power transition heats up, the U.S. Federal Reserve would have to shift its fiscal policy tightening toward a less intense strategy.

In light of this dramatic shift in the metal’s future, let’s examine closely industrial production’s effect on copper prices, production, and consumption.

Factors driving industrial production and copper prices:

The relationship between the rise in industrial production and the demand for copper around the world has been found to have weakened over the last few years. This partially verifies that green funding has already strengthened physical copper markets and demand around the world.

According to data compiled by Bank of America on demand growth rates from industries related to net-zero programs, the consumption of copper is expected to increase by 4.5% annually by 2030. Contrarily, over the previous two decades, the prospective demand growth rate was 2.1%.

However, there are still many aspects of conventional industrial production that have an impact on the cost, volume, and use of copper. In the following, you will find some of the most prominent ones.

• Soaring gas prices:

Natural gas prices that are consistently high have a negative price cycle on copper. Manufacturing businesses have been compelled to drastically cut their productions as a result of rising energy prices across Europe and North America, as well as the concern over future gas supply in these nations as a result of sanctions imposed on Russia due to its conflict with Ukraine.

The consequences of the gas crisis were observed in decline in industrial production in Europe, which fell by 1.1% and 2.55 sequentially in March and April 2022.

Because of its widespread use in various energy-intensive industries, including construction and the production of electronics, the price of copper has historically been associated with the high costs that industries should have to pay.

• Disruptive energy costs:

Metals mining and refinement require a lot of energy. Although what has been said about copper and gas is accurate, copper prices also fluctuate alongside the price of West Texas Intermediate crude oil and other crude oil benchmarks.

Previously it has been believed that this link was primarily on the input side: higher/lower prices of crude oil and natural gas increased/decreased the cost of mining and refining copper. This presumption is still somewhat true, although occasionally, particular circumstances cause the correlation to be inverted.

This means that the dramatic increase in the cost of oil and natural gas might increase demand for copper by igniting the desire for renewable technologies like wind, solar, batteries, and electric cars, all of which, whether directly or indirectly, involve the use of copper.

This may be particularly true in Europe and Asia, wherein natural gas costs have increased to 7–8x North American levels and where 75 percent of the worldwide population resides.

• Energy transition sparking industrial production:

The energy transition can stimulate a considerable demand for copper as well as other metals like cobalt and lithium. The price of solar energy has decreased by around 70% over the last ten years, and the price of batteries has decreased by a fairly equal proportion.

The price of solar power and battery storage has decreased by around 98% since 1990. It will be feasible to conceive a world with plenty of carbon-free power but one that necessitates a lot more copper wire if similar trends persist over the following several decades.

The ground transportation system has already started to show the change. In 2021, global sales of electric cars (EVs) increased by 160% to 2.6 million. In addition, EV sales comprised only about 4% of all car sales worldwide.

This rapid development in EV sales signifies that the need for copper and other metals could increase significantly in the future, boosting their market share in comparison to automobiles powered by combustion engines. When the demand increase, that is what affects the price of copper.

The demand for EVs has grown most quickly in China, among the main economies of the globe. Even without EV sales, China’s economy has been the world’s top copper consumer for the last 20 years.

In order to achieve the Sustainable Development Goals by 2040, according to the G20’s Global Infrastructure Outlook, investments totaling US$94 trillion will be required across 50 nations.

Pumping machines, electric wires, heat pumps, and other electrical devices required to treat wastewater all require copper, which is also essential for the infrastructure of water and drainage systems.

Over the coming ten years, worldwide investments in wastewater management, water treatment, and desalination are anticipated to double due to the impending water shortage brought on by industrial production and climate change.

To accomplish the water and electricity objectives alone, approximately US$236 billion would be required annually until 2030. The US infrastructure plan proposed by President Biden calls for investing US$1 trillion, which might result in the perennial use of an additional 110,000 tons of copper.

· Covid-19 and China:

Copper prices are significantly impacted by industrial production, which was slowed down in China at the same time that it was limited in Europe and North America.

China purchases 40% to 50% of the copper that is newly extracted annually. A small amount of raw copper is used locally, whereas the majority is exported again as parts of raw or final products.

China’s manufacturing industry has frequently shown significant correlations between its growth rate and copper prices, both in the short term and 3 to 5 quarters ahead.

China’s robust manufacturing sector makes up a significant portion of the nation’s annual refined copper consumption, which consists of more than 50 percent of global consumption.

The implementation of the Zero-Covid policy imposed by ever-evolving regulations aimed at halting the virus’s spreading had a negative impact on the industrial production sector.

Thus, constraints on such sectors have had a detrimental effect on copper prices due to their combined actual and projected impacts, which can still be one of the main reasons why are copper prices falling at times when new peaks emerge.

China’s rate of growth substantially recovered in the 2nd half of 2020 and the 1st half of 2021 after experiencing a steep decline early in the pandemic.

The price of copper was closely in line with this recovery. The rate of industrial expansion in China has drastically slowed down ever since then.

Although it is still expanding, China’s economy is currently facing a number of challenges, such as those brought on by rising raw material costs, falling property prices, sluggish export progress, huge debts, dramatically rising corporate bond yields, and an immensely valuable currency.

In 2023, there is a greater chance that copper prices will decline if China’s economy slows down more. So far, you might have utterly understood when copper wire prices will go down.

However, the previously stated energy transition would be the cause of higher copper prices, notwithstanding the possible slower development in China.

· Escalating dollar hike and the threat of an impending recession:

Another factor contributing to the drop in copper prices is the US dollar’s rise, making it more costly for those who hold other currencies to buy the red metal, which is priced in the US dollar, thus cutting its demand.

The dollar has increased a lot since the US Federal Reserve attempted to regulate inflation. Numerous economists foresee even more interest rate rises, which will make the dollar stronger. As a result, the industrial production growth rate may slow down as investors become more cautious about imminent recessions.

Because of this, there has been a slowdown in the prospect of worldwide economic development over the past year, as it is widely predicted that consumers spending will collapse owing to a recession in the coming years, further reducing demand for the finished goods in which copper serves as a key raw material.

On the other side of the supply chain, Chile’s economy has undergone an immense burden of inflation. Being the world’s leading copper producer, Chile’s economy is always prone to be affected by a decline in copper demand, which has resulted in a significant depreciation of the Chilean Peso.

When all is said and done, copper can be recycled endlessly without losing performance. However, due to its soaring demand, increasing recycling only partially mitigates the problem. Even if all copper was recycled, it would only supply 25% of worldwide demand.

The manufacturing economy is attempting to incorporate sustainable power into mining activities and production to limit pollutants and tackle environmental issues in order to progress with more assurance and pace in increasing copper production.

Even if the required investments are made to increase production, many industry analysts forecast a more than 4.7 million metric tons shortage during the following ten years. So without due investments in the construction or expansion of new mines, this enormous gap increases to 10 million tons. Accordingly, when it comes to what is causing copper prices to rise, scarcity would be an unequivocal reason behind it.