Copper is taking on some especially hard times on the commodities market. Copper lost around 30 percent of its value by mid-2011 after peaking around $10,000 per metric ton in early-2011. It experienced a momentary recovery before slipping down to its current price of $2.534 per pound, or $5,575 per metric ton. This is the lowest price for copper since 2008, where prices slumped all the way below $1.50 per pound.
This big question is now looming: Has copper reached its bottom, and is it time to buy?
Unfortunately, copper is much harder to forecast, and making such a judgment is not as easy as it seems. Due to its liquidity, copper has become a major financial tool and is now split into two segments – a financial device or manufacturing uses.
Many believe China is to blame for copper’s current lows. But the fault shouldn’t rest solely on China’s declining growth. About 40 percent of worldwide copper purchases are from China as it tends to use a significant amount of the metal as trade collateral. It is reported that 60 percent of China’s copper stock is used as trade collateral. And as China’s economy continues to slow, copper-backed loans and financial vehicles are beginning to crumble.
Market analysts worry that the copper pricing issues and China’s financial system may experience a short term downward spiral before hitting a new price equilibrium. Because of these concerns, many analysts are adjusting their pricing forecasts for this downward spiral. Recently dropped forecasts for copper include Standard and Poor’s $3.10 to $2.70 per pound drop for 2015 and 2016, and Goldman Sachs November 2014 drop to roughly $2.83 per pound estimates. And being that these current estimate are above current rates, minor growth is inferred.
Global copper analyst, economist, and veteran China-watcher Simon Hunt is anticipating prices to stabilize in mid-2015, followed by a sudden rise and steeper fall again in early 2016, with the possibility of dropping below $1.00 per pound in 2017. Back in 2014, Bank of America’s McNeil Curry mentioned that a short-term surge in copper is likely just that, saying, “…gains are temporary and should be limited.”
Also worthy of consideration is the long-term historical context and current prices being somewhat high. The late-2008 to early-2009 drop mirrors the pricing of 1989. Not until 2004 was that level surpassed, and from 1998-2004, pricing never rose above $1.00 per pound ($2,200 per metric ton). There is pricing room to short-sell copper futures, but for long-term holdings, understand copper is headed towards a new and lower equilibrium point.
