The price of copper is primarily determined by the ability of copper suppliers to extract and transport the product, as well as the demand for goods and services that require copper. Other broad factors include interest rates , economic growth, the availability and attractiveness of substitute goods, and political considerations. Copper is the world's third-most-used metal (following iron and aluminum) because of its versatility and conductivity.
Even though copper has been mined and used by mankind for more than 10,000 years, new uses continue to be discovered today. Copper is found in nearly every home in the United States and Europe because of its use in wiring, piping, heating and cooling. Demand is somewhat dependent on the health of the housing industry. Prices dropped dramatically towards the end of 2008 during the height of the financial crisis and decline of the housing market. This tie to housing meant that copper struggled more than most metals, such as gold and silver, during the recession.
Macroeconomic Factors and Copper
Copper has its own ticker symbol in the commodities market (EHG). Like most industrial or agricultural commodities, traders should be aware of a large number of macroeconomic factors that influence copper price movements, which include the price of alternative base metals such as aluminum, nickel, lead and iron. Rising copper prices during the middle of the 2000s eventually led to advanced uses of aluminum as a substitute in power cables, electrical equipment and refrigeration tubes.
Systematic variables, such as the weather or time of the year, can affect copper production, demand or transportation. A large portion of the global copper supply originates in South America, particularly in Peru and Chile. Worker strikes against copper-producing mines are not unheard of in these regions, and any worry about geopolitical instability can force prices upwards. On the other side of the equation are the U.S. and China, two nations that are very large buyers of copper. The health of the world's two largest economies has a strong influence on nearly every commodity.
Global Copper Consumption
The high rate of global copper consumption requires a high level of ongoing production. Profitable extraction depends on a large number of variables: government tax rates and regulations, inflation levels, labor wage rates, effective management of copper extraction and production firms, and cost-efficient mining techniques.
There are also trading considerations built into copper prices. Copper futures help guide the way for future investments, project development and the number of firms in the copper industry. The proliferation of hedge funds with a commodity focus can actually increase short-term volatility for copper prices through large purchases or sales.
It would be impossible to understand all of the variables that influence the price of any internationally traded commodity. Even if that were possible, it would be even more difficult to weigh these factors appropriately. For this reason, copper speculators have an influence in driving market prices based on the best guesses of today's entrepreneurs .