Copper is an important metal for the global industry. It is one of the key indicators used to assess the state of the world economy. In terms of production and consumption, together with aluminum and iron, it occupies the first three positions in the ranking. It has high thermal and electrical conductivity. Used in the manufacture of heat exchangers, precision devices, heating appliances, pipes, commercial/residential construction. It is used in medicine, chemistry, mechanical engineering, shipbuilding, and the jewelry sector. Due to its versatility, the material is consumed in large volumes.
Over the past 30 years, global copper production has shown high growth rates. 1991 – 9.14 million tons. 2020 – 20.6 million tons. The largest reserves belong to Latin America. Chile, Peru are the main exporters (30%, 15.5% of world exports, respectively). In total, these countries account for more than 40% of the world’s copper production. The top five (more than 70% of exported copper) include Canada, Australia, and Mexico.
The main consumer is China. China accounts for about 40% of world demand (recently, demand has declined, stagnation is observed). The National Bureau of Statistics in China released a report. Production of finished copper products decreased by 1% year-on-year.
The first copper-smelting deposits on the territory of the former Russian Empire began to work in the 17th century. The real rise occurred in the 20th century. According to statistics, in 2020 the Russian Federation mined 1.150 million tons of copper. Produced more than 1 million tons of refined copper. For the third year in a row, refined copper production exceeds 1 million tons.
Key players in the Russian copper market:
- “Norilsk Nickel”,
- “Russian copper company”
In the first half of 2022, Norilsk Nickel received over 110,000 tons. The production volumes of the Russian Copper Company and UMMC, according to data for 2021, amounted to 386,000 and 510,000 tons, respectively. The volume of copper mined by independent enterprises of the Russian Federation does not exceed 2% of the total Russian production. But known sources are rapidly depleted, and the search for new ones is difficult. Analysts predict a shortage of metals, including copper, in the near future.
Today the copper market is unpredictable. During the pandemic global crisis, he experienced a number of serious trials. In 2021, the previously introduced supply restrictions were lifted, and partnerships were restored. Construction companies, large complexes for the production of special equipment and cars have stepped up their work. The non-ferrous metal market revived. The sharp increase in demand led to an increase in prices by 80%. Many analysts, when making a forecast for copper prices in 2022, predicted a gradual decline in the cost. Reasons: surplus, slow development of the Chinese economy, tightening of the US financial policy. But in the long term, given the large-scale electrification of transport, the energy transition, it was planned that the demand for copper would gain momentum. In 2022, new unfavorable geopolitical and economic conditions have emerged. There is a high risk of a global recession.
Dynamics of copper prices by years
2008 – the price of copper on the London Metal Exchange reached a historic high. The cost of non-ferrous metal exceeded 8 thousand dollars per ton. Six months later, the price increased by $1,000 per ton. It amounted to 8900 dollars (the highest figure since the founding of the London Stock Exchange).
2011 – the peak is reached. A ton of non-ferrous metal costs $10,000. In the summer of 2016, the price drops by half. A five-year stagnation (started in August 2011) ends at $5,000. Experts expect a new wave of growth. In 2021, the indicators of 2011 were achieved.
Since 2016, the price of copper has risen by 110%. The absence of economic, geopolitical crises would lead to an increase in prices by another 25%. The fall in 2018 was due to the US imposing sanctions on Chinese goods (electronics, appliances, solar panels). The trade war with China had a negative impact on the price of non-ferrous metal.
In 2021, the price of copper has steadily increased. The need for metal was kept at a high level. The price of one ton of copper from February to May 2021 on the London Stock Exchange increased by $2,000 and reached its maximum value. Until the end of 2021, the cost has consistently remained at a fairly high level. After covid restrictions, the development of the industrial sector did not allow to reduce demand.
Copper prices in 2022
After February 24, 2022, the situation has changed. At first, prices skyrocketed. The 2022 copper price topped $11,000 in March. This led to an increase in the price of non-ferrous metal scrap. The oversupply led to a collapse in prices. Large mining companies (Norilsk Nickel, UMMC) announced an inevitable adjustment to their plans for copper production for 2022. Due to a decrease in demand, it was decided to reduce production by 10-20% in the second quarter of 2022. After June 17 ( in just one week) the price reached February 2021. The fall continued. By July 4, there was a price decrease of 2.5%. A critical minimum was recorded in mid-July.
Now the cost of copper scrap is below the historical maximum by 27%. Compared to January 2022, it has fallen by 20%. Russia is in eighth place in terms of meeting the world’s demand for copper. If this metal is in short supply and it is in demand, the economy grows. The reverse situation is also true. You can track the relationship. Copper is the main indicator by which economic activity can be analyzed.
The cost of copper scrap depends not only on economic and political factors. The influence is exerted by the internal policy of a particular organization. In different cities of Russia, the price of copper in 2022 is practically the same. When assessing the state of the metal, the presence of a coating, shell, shape, and insulating layer is taken into account.
Futures contracts for copper are traded on the Moscow Exchange. But the largest turnover occurs on the international commodity exchanges in London and Chicago. Prices are lined up taking into account the value of the US dollar. Metal weight is measured in pounds.
Any futures can be exchanged for the corresponding amount of material metal. Futures contracts allow consumers and producers to manage the potential risks associated with long-term planning and contracting. The tool itself is considered quite complex. When using it, you should conduct a thorough market analysis in advance, assess the prospects. To correctly calculate the copper rate, the forecast must be made by an experienced expert. Additionally, special graphics and other thematic tools should be used.
Key factors that reduce or increase the cost:
- fluctuations in the supply/demand ratio;
- the pace of industrial development;
- features of corporate governance of mining companies;
- the economic and political situation that is taking shape in the producing countries;
- global trends in economics, politics;
- man-made, natural disasters.
It is important to study the opinions of analysts. At the moment, the market is experiencing an abrupt drop. A critical low was reached in July. There was a sharp decrease in cost by 30 – 40%. This was followed by a slight price increase. But she still remains at a fairly low position.
The long-term outlook for copper remains positive. It is planned that the demand for renewable energy, infrastructure, as well as investment in cars will increase. Rising prices will positively affect the shares of copper companies. Analysts recommend adding them to your portfolio. Buying stocks at the low can be a big plus in the long run.
What affects the price of copper?
There are a number of factors that affect the price of copper:
- Fight against covid. The result is a weakening of the economy, a decrease in demand for non-ferrous metal. Quarantine restrictions impede the development of the industrial sector and construction.
- The rapid increase in the interest rate of the US Federal Reserve. The increase was 0.75 points (2.5% per annum). Maximum for the last 28 years.
- An unpredictable geopolitical situation: confrontation between America and China, a special operation in the Donbass. Numerous supply chains have been disrupted.
- Decrease in production volumes of large automobile concerns. The domestic market has lost the main representatives of the foreign auto industry. The production of passenger cars has halved (data from the first half of 2022).
- The volume of construction of retail and commercial real estate decreased by 75%.
- Postponement of the implementation of energy projects involving the use of copper to a later date. It is not worth expecting the development of the green energy sector in the short/medium term. It should be noted that copper is an environmentally friendly metal. Recyclable. It is actively used for the production of wind generators, solar panels.
The factors listed above had a negative impact on the level of non-ferrous metal consumption. The result is a rapid drop in value.
Copper price forecast for 2022-2023
The short-term dynamics of oil prices is characterized by a low level of stability. The reason is macroeconomic factors. The price of copper is considered a sign of an economic recession. Falling prices reflect investor sentiment about the state of the economy. These fears are fueled by the aggressive policy of the US Federal Reserve.
At the same time, government experts on commodity forecasts believe that the metal will rise in price in the second half of 2022. In 2023, the value will not decrease much due to the weakening of the influence of macroeconomic factors, the fear of an indefinite deficit caused by the depletion of world reserves.
Expert opinions on copper prices for 2022 and 2023
The Ministry of Industry and Trade of the Russian Federation presented a project for the development of the domestic metallurgical industry and a forecast for the price of copper in Russia. In accordance with the data specified in the project, the demand for copper in Russia will fall several times from 2022 to 2030. Export of products will remain a key area of development. Analyst V. Danilov recalled that the main consumer sectors of non-ferrous metals are mechanical engineering and construction. These sectors have been seriously affected by the start of the special military operation and the imposition of sanctions. The volume of construction of immovable objects decreased by 70%. Car production has fallen several times. Many foreign companies left the domestic market. The situation was further complicated by the transfer of individual projects in the electric power industry.
But Australia’s commodities forecasters are confident that global copper prices will rise. Moreover, the price increase can be observed by the end of 2022. They compiled a copper outlook for 2022, which indicates that the first factor that will support the price of copper in the short, medium term is the recent law to reduce inflation in the United States. In the long term, the main factor in determining the dynamics of the price of copper will be how well central banks cope with the resulting inflation.
Despite the optimistic conclusions of some experts, many analysts are in no hurry to give favorable forecasts in the short/medium term. Copper is up 11% in the two weeks since its July low. This was due to the decision of the US Federal Reserve. But the price of copper in August 2022 shows a negative trend. Moreover, many experts say that for them it happened unexpectedly. The price of copper directly depends on macroeconomic indicators (indices of business activity of the EU countries, Great Britain, USA). Another factor affecting the cost is the level of demand. Experts believe that over time, the shortage of non-ferrous metal will increase in the world. This will provide fundamental support for its value.