The value of copper fell to an absolute minimum of the past six years, at the LME (London Metal Exchange) yesterday. At the end of trading, the price of copper was only 4,765$ / t
The worst thing is that is still the “good” price. Analysts believe that the price of copper has not yet reached bottom. Today it is expected to break the price barrier of $ 4,750 / t, and in the best case it won´t decrease below $ 4,680 / t.
"We can expect that prices will decrease by another 10%." - said Atul Lele, Chief Investment Officer in Deltec International Group, which manages the fund worth $ 2 billion.
Why is the price of copper so important?
Red metal has been very reliable indicator of economic health at the regional or global level for decades. Since it very precisely predicted economic trends, financial analysts named it "Dr. Copper".
This coloured metal is nowadays widely used in the industry but also in everyday life. It is needed everywhere: in the energy sector, in construction, in the automotive industry, aircraft, ship building, home installations. Without it, there would be no smart phones, computers or other benefits of modern technology we use every day.
How can copper forecast economic trends?
Copper earned the title “doctor” thanks to being able to predict turning points in economic trends. How can thi be possible? It is actually very simple. Through decades of following th economic trends, it has been proved that one of the first indicators of a growing economy is increased demand for copper, or increase in its price. The sam thing happens in opposite case - when economies slow down their growth, stagnate or even fall, the first indicator is the reduced demand for copper,or decrease in its price.
Alan Greenspan (Chairman of the Federal Reserve of the United States from 1987 to 2006) in the middle of the last century used the trends in the price of copper to forecast a probable economic trends.
Is the current trend in copper prices warning us of a new global crisis?
U odnosu na 5.135,50 $/t s početka studenog, vrijednost bakra na londonskoj burzi metala pala je na za velikih 370,50 američkih dolara po toni, odnosno za više od 7%. Uspoređujući s jedanaestim mjesecom prošle godine, pad je još izrazitiji – 28,8 % ili što je pad od čak 1.930 $/t.
Compared to $ 5,135.50 / t from the beginning of November, the value of copper on the London Metal Exchange decreased by 370.50 $/t, or more than 7%. Compared to the price in November last year the decline was even more expressive - 28.8%, or $ 1,930 / t.
Price of copper on the world market is unstoppably sinking. There are several reasons for this:
- slowed down growth of the Chinese economy
- strong dollar
- reduced global demand for copper
Copper price development - November (LME 3-month, $/t)
At the global market China consumes the most refined copper - about 47% of world production – twice than Europe and four times more than the United States. In such relations is quite clear that the slightest changes in Chinese demand could bring a large deficit or a surplus of copper in the world market. There is simply no market that could compensate for changes in Chinese demand. Continuous increase in Chinese demand for the red metal and insufficient supplies of materials on the market, in 2011 led to the huge increase in the value of copper, so the price of copper then was twice as the prices today Less than four years later, quite the opposite story happened. The slowdown of the Chinese economy led to reduced consumption and the accumulation of stocks, which ultimately caused the fall in copper prices ..
The price of copper in 2011 reached an unrealistically high value, as well as current prices are unrealistically low. In the equation of global markets China is proved to be a volatile value. At first it was used for "pumping" the price to the general satisfaction of all market participants, while today it is a scapegoat for the global decline of the same price.
On the other hand, it would be totally unfair to put all the blame only on China. Copper producers , who were used to high demand and good prices, have ignored the warnings and blindly continue working at full capacity by accumulating more and more reserves of copper which nobody buys. It is a further collapse of the trust in the stability of the market and it led to the classic counteract. The fall in prices has alerted customers and mortified the market. All are waiting to see what will happen next, and the only thing that happens is the further collapse of price.
An additional problem in the global copper market was also caused by the unexpected strength of the US dollar. Since the big part of trading with copper is carried out with US dollar, its growth in relation to the domestic currencies led to further price correction.
It is very difficult to make a conslusion that the world is moving towards a new global crisis, just based on copper prices. Regarding the fact that other base metals such as aluminum, lead and zinc share a similar fate as copper, we can conclude that the time of great profits has come. Such low prices will certainly not last for a long time, but it won't even rise to some unrealistic heights. All market participants will have to be reconciled with the fact that the market itself will regulate realistic price that will be acceptable both for the customer and for the manufacturer. Would such development be adverse on the global level? It is quite possible. There are enough serious predictions that the inflated stock price will easily get broken if their value is not based on "tangible" results.
What are the prospects for the future of copper?
Each cycle sooner or later comes to an end. Copper is no exception. According to some indications, China could again take the lead role in the recovery of its cost. The world is increasingly turning to "green industry" and new technologies that require more copper. That is the long term plan of the Chinese government, that beside the increase in domestic consumption it turns to environmentally friendly (cleaner) industry and the development of specialized high-tech products.
Analysts believe that green industry will bring the necessary stability of the copper market, in the future. According to the forecast of the World Bank, during 2016 there will be a stabilization of the market, with very slow growth rates until 2025, when the value of copper should increase to about $ 6,000 / t