Copper prices - which way are they expected to go?

Back in the early 20^th century Thomas Edison selected Copper as the material of choice in the core of his electricity transmitting cables. This was because Copper was the second best conducting metal after Silver which was far more expensive and thus unthinkable as a choice material for electric cables.

The recent bull run in copper prices has seen prices soaring to above $12,000 per ton, and many players in the market believe that prices will increase further.

However even though there is tremendous euphoria and options traders are seemingly just one way on the metal, there is abundant caution among those who were burnt by the recent pump of rare-earth metals and EV metals lithium and cobalt. Not 3 years ago, as there was a global movement towards electric vehicles, lithium, cobalt and rare-earth metals became much in demand and prices shot up quickly. The hype was palpable with lithium prices (quoted as hydroxide compound form) went up from 35,000 CNY per ton to almost 600,000 CNY per ton within 2 years. Yet these prices came crashing back down within 4 months of the peak and are currently around 100,000 CNY per ton.

The same situation could play out in copper. Even as solar panels demand, electric wiring and other electricity driven applications are becoming more and more ubiquitous. It is not inconceivable that prices that are run in the short term (lasting maybe 12 months more or so) could quickly come back to normalized levels.

On the other hand the definition of normalized could also be indicative of things to come, as a historic trend line shows that copper used to be around $2,000 per ton at the turn of the 21^st century and has very comfortably pegged itself around $6,000 - $8,000 per ton by 2014. Maybe the new normal could very well be around $12,000 - $16,000 as demand shows no signs of abating.

Macro economic forecasts could very well be the decisive factor. Amid a widescale Chinese economy slowdown there is evidence of Copper trading at a discount in the physical commodity markets of Shanghai.

Still Copper Ore seems in short supply, and the smelters and refiners can’t seem to get enough to keep their furnaces hot. There is also some major moves of consolidation and supply augmentation expected in the upstream copper markets with major players in Chile, Anglo American, and BHP Biliton leading the way.

All views are personal and cannot be construed as investment advice

1 CNY = 0.14 USD