Copper often hailed as "Dr. Copper" for its ability to provide insights into global economic health, stands at the crossroads of multiple market dynamics. In the ever-evolving landscape of commodities, the interplay between economic forces and the availability of recycled copper emerges as a critical determinant of copper prices. As electric vehicles (EVs)and solar panels compete for their share of copper supply for their applications, the relationship between an economic indicator and the recycled copper market becomes imperative for commodity pricing.
What are some factors driving copper prices?
The interplay between the economy and recycled copper prices can significantly influence overall copper prices. Here's how each factor can affect copper prices:
Economy: The state of the economy plays a significant role in determining copper prices. Copper demand has come from various industries, including construction, electronics, and manufacturing. Therefore, economic factors such as GDP growth, industrial production, new homes, and infrastructure spending can drive demand for copper. Conversely, in a weak economy with reduced industrial output and construction activity, demand for copper may decrease, putting downward pressure on prices.
Recycled Copper Prices: The availability and cost of recycled copper can also influence overall copper prices. Recycled copper, sourced from scrap metal, is an essential supply source for the copper industry. When the prices of recycled copper are high, it becomes more economically viable for recyclers to supply the market with recycled copper, potentially increasing overall copper supply and reducing upward price pressure. Conversely, low prices for recycled copper may reduce the incentive for recycling, impacting overall copper supply dynamics.
Technicals
Source: Barchart
The monthly nearby copper futures chart reflects rangebound prices from 1960 to 2005, and then China's urban construction and exuberant consumer spending persisted, resulting in a significant copper price rally.
The 2008 housing crisis resulted in copper prices precipitously falling until 2009. The decline in overall economic activity was modest at first, but it steepened sharply in the fall of 2008 as stresses in financial markets reached their climax. US gross domestic product fell 4.3 percent from peak to trough, making this the deepest recession since World War II.
From the price lows in 2009, the copper market made new all-time highs in 2011. 2016-2021 saw sideways price action. As the stock market rose to its all-time high in 2022, copper market demand increased, resulting in an all-time high price of $5.0395. As the bear market gripped the US stock markets, copper prices declined. The stock market bottomed in October 2022, while the copper market bottomed in July 2022. Dr. Copper was a leading indicator of economic expansion.
Source: Barchart
The weekly nearby copper chart reveals the July 2022 turn before the stock market bottomed in October 2022. Copper prices have traded out of consolidation to the upside. The weekly uptrend has pushed prices back to near-all-time highs.
Will the Bulls be able to make new highs?
The Commitment of Traders (COT) Report
Source: CMEGroup Exchange
The COT report reflects the managed money traders' positions in the copper market. The recent report shows they hold as many long (blue bars) positions as before the all-time high prices in 2022. The yellow line reflects the copper price. Managed money traders are typically trend followers, and it appears they acquired more long positions before attempting to make new all-time highs.
Recycled Copper
Did you know nearly 20% of the world's refined copper supply is derived from recycled materials? It's pretty astonishing; some of the copper products used today could have been mined decades ago, if not longer. This is because copper boasts an impressive recovery rate of nearly 90%. Most items you drop off at your local scrapyard can be stripped, melted down, and transformed into new copper rods for production.
With the demand for copper steadily increasing, the argument for enhanced recycling practices becomes even more compelling. Presently, global copper consumption stands at approximately 28 million tons. However, projections from sources of copper companies suggest that this figure will reach nearly 38-40 million tons by 2032.
This surge in demand for copper could swiftly strain the existing supply chain unless we find ways to extract more copper through mining or make recycling more attractive. Unfortunately, opening a new mine typically requires 14-16 years, and advancements in mining technology have been relatively modest. Hence, recycling might emerge as the saving grace we urgently need today and in the foreseeable future.
Copper and other nonferrous metals retain their chemical and physical properties throughout recycling. This characteristic ensures that it can be recycled indefinitely without any degradation in quality.
Higher copper prices result in higher profit margins for recyclers. For this reason, recycling will reduce the concern of an inadequate supply of copper in the future.
In closing….
In closing, the balance between economic indicators and the recycled copper market is a pivotal determinant of copper prices, shaping the landscape of global commodity pricing. Understanding these market dynamics becomes imperative as industries like electric vehicles and solar panels vie for their share of the copper supply. Economic conditions and recycled copper availability significantly influence copper prices, with demand projections showing increased strain on the supply chain in the coming years. Amidst this backdrop, recycling emerges as a crucial aspect in meeting future demand, offering a sustainable solution to potential supply constraints. With copper and other nonferrous metals boasting infinite recyclability without compromising quality, investing in recycling practices holds the key to ensuring a stable and robust copper supply chain for generations to come.
While demand for Dr. Copper is increasing, the world will find a way to improve the supply needed for global economies. New all-time high prices are not out of the question due to the capital being poured into the copper market by the bullish money managers. But, copper prices will likely find plenty of commercial sellers not far beyond the previous all-time highs.
On the date of publication, Don Dawson did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
