Copper is one of the most widely used metals on earth and plays a vital part in everyday life, with uses ranging from electrical wiring to fertilizer. The price of copper is believed to provide a reliable measure of economic health, as changes to copper prices can suggest global growth or an upcoming recession. This link between the global economy and copper prices makes the metal a popular choice among traders who want to speculate on sectors. Copper price charts can be used to assess the sentiment of other financial markets, like the stock market.
The price of copper is influenced by a range of factors, but like all commodities it is primarily driven by supply and demand.
On the supply side, key players include the largest copper-producing countries - Chile, China, Peru, the US and Congo - as well as shipping companies and other parties in the distribution chain. Copper prices can be impacted by geopolitical and natural events that slow down mining output, such as workers' strikes and earthquakes.
On the demand side are net importing countries, who import more copper (or other goods and services) than they export. Over the past 100 years the demand for copper has risen by almost 20 times, as developing nations use it to expand their infrastructures and boost their economies.
Additionally, the price of copper is linked to domestic housing markets, as the home-building industry uses vast amounts of the metal. This means that factors with an impact on the housing market often affect copper prices, such as non-farm payrolls, mortgage rates and GDP.
Lastly, the substitution of alternative metals can also impact the copper price. If the price of copper rises too much, buyers will seek cheaper alternatives and demand will go down. For example, in the mid-2000s, the rising price of copper led to advancements in the use of aluminum for wiring and automobile production.
Copper has been mined and used by humans for at least 10,000 years - dating back as far as the Bronze Age, when it was the first metal ever smelted. At this point in history, when the commercial trading system was based on bartering, copper's value was measured against that of food, wine, livestock and alternative metals.
Copper has been used alongside gold and silver to make coins since the Roman era, but copper's low value meant it was never considered a monetary standard.
Fast-forward to the 20th century - copper is being used all over the world in a wide range of sectors, such as construction, agriculture and transport. As a result, the copper price has become increasingly linked to its industrial applications in wiring, electronics and manufacturing.
Like gold and silver, copper is popular among traders and has a variety of uses. But unlike those precious metals, copper is a base metal which is common and easy to find. So, while gold and silver have inherent value, copper's price is tied to its utility.
Copper price can be viewed as a measure of economic health which is why copper has earned a reputation of having a Ph.D. in economics, and the nickname "Doctor Copper". Therefore, traders have the opportunity to take a position on copper based on their view of world growth and GDP. But speculating on the price of copper comes with risk as well, as if the economy goes into a slowdown the market would suffer. Commodity traders also need to consider that, like all metals, copper supplies are finite - it is believed the world reserves could be depleted in the next 60-70 years.
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by Jake Schoenleb