The effect of energy prices on the copper market

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Cryptal global

14 min readOct 6, 2022

Trading in copper is similar to trading in any other commodity. Subsequently, many factors that influence the global economy also affect the price and market for copper. The rise in oil costs, the scarcity of copper metal on the physical markets, the appreciation of the euro, the decline in China’s inflation rate, the steady decline in copper stock in the warehouses of the London Metal Exchange, and the current energy crisis would all be mentioned.

The elements mentioned above occasionally work in synergy and sometimes have no effect. Some can be predicted, while others cannot, or their impact can be assessed with a high chance of being wrong. While some of these elements only have an immediate, short-term impact, others have a longer-term impact. The world’s economic issues, particularly the decline in Chinese demand and the publication of unfavorable statistics by the largest copper exporter, namely China, in 2014 and 2015, as well as the current energy crisis that the entire world is experiencing, have had the greatest impacts on copper prices in recent years. It is the encounter. The copper sector is in a tumultuous situation due to the shortage of supply and the harm to demand, which has caused a decline in the price of this industrial metal.

The price of copper for three-month delivery on the London Metals Market and the Chinese spot price decreased month over month, and the Copper Monthly Metals Index (MMI) dropped 1.7 percent in the wake of a deteriorating demand forecast for copper.

Copper’s price and the impact of the Central Bank of America

Copper prices have dropped as the Central Bank of America gets ready to modify financial stimulus policies during the Corona period. The Central Bank has informed the market of America to raise interest rates and modify the bond-purchasing program. The US dollar profited from this news, as its value increased during the last month. The aforementioned circumstance is particularly significant for copper. Typically, the US dollar and commodities have an antagonistic relationship.

In addition, market confusion and changes in copper prices may result from choices made by the American Congress or from the absence of decisions made by American lawmakers. There is still a delay in the House of Representatives’ bipartisan infrastructure accord. The likelihood of market instability has grown because Congress did nothing to raise the government’s debt ceiling.

After the US Federal Reserve authorized plans to tighten monetary policy, copper prices fell sooner than anticipated. Programs conducted by the Federal Reserve that lessen market liquidity contributed to falling copper prices. The Fed’s decision to adopt a more hawkish posture at its policy meeting drove up the dollar and increased the cost of dollar assets for holders of other currencies.

The positive market, on the other hand, had a trade surrender, which placed great pressure on metals, particularly copper. China increased anticipations that it will loosen its monetary policy in order to help its economy. The market saw China’s action as a hint of weakness in the world’s largest buyer of metals. Similar to this, the copper supply shortfall will start to show up in the second half of this decade, starting in 2010.

The World Sustainable report, a new monthly publication from Capitalight Research, projects that the demand for copper would increase by 3.8 percent by 2022 to reach roughly 25 million tonnes worldwide. However, existing copper mines like Kamho-Kakula owned by Ivanhoe in the Democratic Republic of the Congo or Mina Justa in Peru and Timok in Serbia, as well as brand-new projects in the works like phase 2 of the Quebrada Blanca project owned by Boosts to Teck Resources, will supply this red metal over the following few years.

The current mining development wave is anticipated to peak in 2024, and the substantial mining supply gap is expected to close in the second half of the decade. By 2025, the demand for copper from electric cars, energy storage, and renewable energy projects might treble to 8.5 million tons. Contrary to prior years, higher demand brought on by global decarbonization will affect copper prices more than short-term macroeconomic changes in China.

The effect of China on copper pricing

The second-largest economy in the world, China, continues to exhibit instability signals. The leading producer and user of refined copper is this nation. The most recent problem is connected to the nation’s electricity crisis, which has hampered the nation’s manufacturing economy and copper output.

Coal is mainly used in China to provide energy. The supply has dropped below the required level, which has caused the prices to rise. China’s various provinces have limited how much power people may use. Afterward, manufacturers ceased making products and turned off the electricity. Some predict that these closures will impact the availability of consumer products in the US.

The August and September Kaishin indices, which were 49.2 units and 50 units, respectively, reflect the effects of the circumstances mentioned above. A score below 50 points denotes a decline in manufacturing activity.

In China’s financial crisis, demand was also negatively impacted by worries about the “Overground” real estate firm. The future of China’s copper-heavy building industry is still up in the air.

While the global commodities market was experiencing a negative signal from the rise in the US dollar value, the Chinese government’s economic choices pulled copper back into the rate hike rally. Positive signals had a more significant influence in this market than negative ones, and copper on the London Metal Exchange rose back to $9,400 consequently.

Additionally, the market’s traders purchased this red metal for delivery at a price that was roughly $40 higher, indicating that the price will continue to rise. The price of copper in China’s domestic market and the following markets was generally strengthened in respect to significant repairs at the country’s primary smelting plants and the Central Bank of China’s decision to extend loans to the private sector to enhance economic mobility.

The government of this nation nevertheless insists on a price control strategy in the country even if it does not specify how this rate restriction will be carried out, despite the fact that China’s economic signals encourage the increase of commodity prices in the short and medium term.

The red metal entered the Contango phase thanks to a fortunate comeback to the market

The price of copper on the London Metal Exchange has fluctuated. The price of copper cathode per tonne in this market ultimately reached 9,396 dollars per tonne after this metal’s price fluctuation pattern reversed from one of the price decreases. This market’s growth rate occurred when the US dollar index was rising, and this development was viewed as a warning sign for global commodities markets. However, this market’s positive signals, which were frequently coming from China, outweighed this overall negative signal and helped to drive up the price of this metal. Of course, it should also be noted that copper is only just starting its uptrend, so it remains to be seen which way the metal will go with respect to the strong signs.

Despite beginning a rally, copper was unable to reach the $9,400 channel. However, this metal was exchanged for the three-month auction at a price offered per ton. In this way, the market was placed in a contango condition, indicating that the market’s participants anticipated a greater rate of price rise for this commodity. The amount of copper stock in the London Metal Exchange warehouse grew due to the price increase in copper cathode transactions. In this way, it can be argued that the market has been receiving strong enough positive signals to prevent the price of this red metal from falling despite a rise in the number of stocks on the London Metal Exchange.

The effect of Chinese economic statistics on the market for the red metal

Despite the red metal’s recent lack of favorable data, the price of copper rose in the international markets. However, China’s economic data caused this metal’s price to rise again. China’s economic data that was made public was poorer than anticipated. In contrast to expectations of an 8.1 percent growth, China’s GDP increased by 7.9 percent in June. Prior predictions of China’s economic development have not been achieved. Among the main causes are the stalling of manufacturing activities, Corona’s resurgence, and the rise in the price of providing raw resources there.

The Bank of China decreased the legal reserve rate for the majority of the nation’s banks by 0.5 percent. This implies that the banks in this nation can infuse one trillion yuan, or 154 billion USD, into its economy. Supporting the real economy, particularly China’s small and medium-sized businesses, might be a solution to this problem. After the harm was done to the economy by the spread of Corona, the Central Bank of China deemed this choice to be a strategy to boost business and building in this nation. According to Chinese analysts, this is China’s final choice to release cash this year.

Although China’s increased infusion of money is intended to raise the nation’s GDP, it may also boost commodities prices. Because of this issue’s extreme efficacy, many people associate this signal with copper’s return to the upward rise.

Naturally, Chinese government officials continue to stress that the markets are stable. The Chinese Prime Minister stressed the continuance of the policy of price stability in the second half of 2021 and even 2022 at a meeting with economic experts and activists from this nation. He did not discuss how to impose price control and stability in this nation during this discussion. However, he highlighted that the Chinese government would utilize all of its resources to regulate prices since rising prices have raised production firms’ expenses and negatively impacted the operations of small and medium-sized businesses in this nation.

Price increases are constrained by declining output

The volume of copper cathode manufacturing in China fell by 3.6% in June. This decrease in output was brought on by several of the main copper smelting and refining plants working on repairs. Naturally, these production operations in other copper smelting facilities in China continue indicating that the price of this metal will increase in that nation.

According to Antaike, China’s 22 significant smelting facilities produced 4.61 million tonnes of copper cathode between January and June of this year, which is 12.4% greater than the nation’s output of refined copper during the first half of 2020. Naturally, this rise in output in the wake of China’s production declining in the first half of 2020 as a consequence of quarantine and control requirements.

For the ninth week running, the supply of copper equities on the Shanghai Stock Exchange has also fallen. When compared to months ago, the price differential between copper on the London and Shanghai stock markets has decreased to roughly 40 dollars per ton. This problem will increase China’s demand for imported copper cathodes, increasing the price of copper metal globally.

Commodity markets anticipating a supercycle that uses a new strategy

In its most recent research, Wood Mackenzie noted the likelihood of a new supercycle in the commodities market, increasing the price of several essential metals. In this Wood Mackenzie research, it is underlined that this supercycle differs from prior supercycles in that the cost of the raw materials used in producing renewable energy would rise rather than the cost of the conventional energy carriers going up. This problem can strongly influence the dynamics of the global mining industry. Because of their unique role in developing renewable energies, metals like nickel, copper, lithium, and aluminum will have the fastest growth rate throughout this new supercycle. At the same time, the development of this new product supercycle is supported by China’s entry into the renewable energy industry and the emergence of fresh consumer demand in this area.

According to Simon Morris, the head of Wood Mackenzie’s metals division, 60% of electric vehicles, 70% of solar panels, and 75% of the world’s lithium-ion batteries are now made in China. However, this nation has many more ambitions for this industry, and this problem could alter global commodity demand in the future. With China’s total control over the whole value chain of renewable energy, there is a chance that the present organizations operating in this sector throughout the world will be in danger. Over the years, this nation has been growing its technological abilities in the field of establishing these businesses.

The AET-2 scenario, which Wood Mackenzie outlines in this paper as a way to cut fossil fuel usage and slow global warming, is expected to result in a considerable increase in the demand for metals used in the renewable energy industry. So that by 2030, the world’s demand for aluminum, copper, and nickel will have increased by 360 million tons, 90 million tons, and 30 million tons, respectively.

The market for these metals may see supply issues with respect to this rise in usage in the years to come. According to Wood Mackenzie’s analysis, this may be the first time in history that a shift in consumer behavior can be anticipated with such confidence before it really occurs. In this way, it should be noted that the current circumstance calls for forethought in order to avoid becoming swept up in the crisis.

Increase in the cost of refining

Copper prices are low, which benefits smelters. For the fourth quarter, Chinese copper smelters increased the price of refining copper concentrate to $70 per tonne and seven cents per pound. While the aforementioned costs were consistent throughout the year, there was an increase.

Due to the decrease in demand and the resolution of wage contracts of Chilean miners, the copper concentrate will be widely available despite the cost increase. Additionally, a period of reduced production at copper smelters coincided with this increase. The Guoran plant, with a manufacturing capacity of 100,000 tonnes per year, and the 300,000-ton-per-year Nanguo factory ceased operations and continued to operate similarly.

On the other hand, during the past 15 years, North America and Latin America have lost nearly 50% and 35%, respectively, of their market share in the production of refined copper. Consequently, nations like the United States of America and Chile are attempting to export more of their concentrate than refined copper output. This is owing to the high costs of smelting and refining copper and the greater added value of concentrate production. The government’s attempt to attain national self-sufficiency, improve the industrial rank, enhance the country’s income, and other crucial metrics by relying on the plans they have created for export to the country under consideration and target. Based on this, some nations aim for the country’s industrial growth with the lowest cost and the best profit by assessing their important sectors, such as steel, aluminum, and copper. For instance, throughout the past several decades, various developments have occurred in different parts of the world concerning the manufacturing of refined copper. Despite these modifications, the average annual growth of this red metal’s output from 2000 to 2015 was roughly 2.9%.

Despite the fact that refined copper use is rising globally, regional trends in consumption vary. Countries like North America and Latin America no longer produce nearly as much refined copper as they once did. North America’s market share has decreased by over 50% during the past 15 years, while Latin America’s share has decreased by roughly 35%. The United States and Chile continue to be two of the world’s top producers of copper.

The change in the economic circumstances of copper production at different links of this industry’s supply chain may be the cause of this noticeably decreased output of copper. Chile and the US have experienced significant troubles with operational expenses and environmental concerns in recent years. According to research conducted in the copper sector, America entirely shut down some of its refining copper manufacturing facilities and replaced them with imports.

Since 2000, Chile has experienced severe financial issues related to its copper sector. The direction of the industry in this nation, like the United States, has changed in the direction of decreasing the production of refined copper in the wake of numerous labor strikes aimed at raising wages and benefits, as well as the high cost of copper due to high production costs, especially energy costs. The processing and concentration of the ore to create concentrate is the step that adds the most value, according to an analysis of the concentrate ring from the refined copper manufacturing value chain. Environmental problems brought on by the copper smelting and refining process have also been a driving force behind this growth, in addition to economic metrics like added value and larger profit margins that drive governments to enhance national revenues.

These long-term plans of output reduction have increased concentrate exports in order to offset the expense of copper consumption. The decline in copper smelting and refining tariffs during this period was another factor, and closures were occasionally brought on by a decline in profit margins regarding the gradual decline in these indicators. The topic of added value in the context of the copper sector in Iran is more accurate when discussing the production of concentrates. In contrast, the production of refined copper has a very low added value, occasionally resulting in a negative profit margin. Despite this, the government is adamant about finishing the copper product supply chain and raising the export tax for mineral goods, which puts further strain on the nation’s upstream copper business. A problem that in the future is likely to cause the country’s copper sector to lose a lot of competitiveness and suffer significant economic losses on the global markets.

The state of the market’s pricing

Copper futures are often traded on the COMEX, the Multi-Commodity Exchange in India, and the London Metal Exchange (LME). The usual deal is 25,000 pounds. The third most utilized metal worldwide is copper. Chile produces more than a third of the world’s copper, with China, Peru, the United States, Australia, Indonesia, Zambia, Canada, and Poland coming in second and third, respectively. Trading Economics uses over-the-counter (OTC) and contracts for difference (CFD) financial instruments to calculate copper market prices. Our copper market prices should only be used as a guide for you, not as a foundation for trading choices. Trading Economics disclaims any responsibility to verify any data independently, and neither does it.

On the London metal market as of October 1, the price of copper for three-month delivery fell by 2.3 percent month over month to $9101 per ton.

The spot price in China dropped 0.9 percent to $10,678 a ton. Additionally, the price of Chinese scrap copper increased by less than 0.1 percent to $9,846 a ton.

According to the Oil Price report, grades 110 and 122 of American copper producers declined by 3.3 percent and reached 4.9 dollars a pound. A pound of producer grade 102 costs $5.1 after falling 3.2%.

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