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Copper 2015: analysis of previous year prices

Copper 2015

Copper is one of many commodities that have been stuck in the downward channel in the recent years. But a 21.4% recovery in price of copper in the first quarter of 2015 from level around $2.5 to $2.95 made waves in the commodities market. This was a time of high hopes for copper together with lead, the other high performing commodity. All the major newspapers stated that the prices have been buoyed by optimism about global industrial recovery led by the biggest copper consumer China is stabilizing its economy. At the same time the Eurozone Central Bank was helping to improve economic conditions in order to kick-start the economy, which is a strong copper buyer as well.

Copper 2015: Factors that affected copper prices in the previous year

A weaker than expected US Dollar also helped to improve the price of copper, as the metal's prices are set in American Dollar, and the asset becomes less expensive for foreign traders to purchase. But copper's rally was primarily based on hopes and speculations and not on firm data.

Indeed copper has seen a major fallout from grace until the end of the year. All major buyers of copper contracts offloaded over 80% of their long positions and the market became mainly concerned by slower then expected industrial growth, particularly in China. It's economy is on the brink of stagnation and there is no clear plan to solve the falling housing market, which is a key buyer of copper in China. And with imports falling more than 4% there was no reason for strong copper purchasing in China. Possible Grexit has been as well a major stir for European investors, as in case of Greece leaving the Eurozone, Europe's demand for copper would be hurt. Strong US employment numbers and Central Bank's interventions have made the US currency stronger and copper more expensive to buy.

The situation could have been far worse and the copper prices could have been even more bearish, if not the possible issues with copper supply, which may be disrupted. Taking into account the destocking of copper by China, supply is higher than demand and the copper prices have been destined to fall to around $2 by the end of the year, but copper mining and supplies are still in serious trouble. For instance, commodities giant Glencore PLC has seen its stock prices fall from more than 9% at a time, because of growing regional instability and closure of mines in Indonesia. At the same time, the International Copper Study Group released its findings saying that the demand is a few percents less than expected.

Finally, supply of copper, unlike oil or other major commodities, is very tight. Together with stronger US Dollar, European and Chinese industrial stagnation and investors panic the prices reasonably fell down sharply. The end of the year for copper and other commodities showed that there may be a demand in the future and that the prices may rise, but it was not there just yet. And if these hopes are based on fundamentals and not on speculations, next year may see a strong bullish period for copper.

By Chieffinancing 25.07.2016

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