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Copper: The Commodity.com Guide


Where Does Copper Come From & Why Is Copper Such a Valuable Commodity?

What Is Copper?

Copper is one of the most widely used metals found on planet Earth. The shiny, reddish-orange element is believed to be the first metal used by humans thousands of years ago. In modern society, copper plays a vital role in everyday life. Its physical properties, which are similar to gold and silver, make it perfectly suited for a range of industrial uses including electric wiring, plumbing, roofing and industrial machinery.

Copper is soft, pliable and malleable, and it conducts heat and electricity very well. However, unlike gold and silver, copper is not widely viewed as a currency. Therefore, copper costs far less than precious metals.

The global supply of copper comes principally from underground mines and from recycling copper products.

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Where Does Copper Come From?

Underground Mines

Miners extract copper from ore deposits found in underground or open pit mines. Successful copper mining requires concentrated ore, which can be ground into fine material. The copper is then separated from waste materials and is then refined further through the smelting process.

Although copper has been used by humans for many centuries, more than 95% of all the copper ever mined and smelted has been extracted after 1900.

Annual copper mining typically exceeds 19 million tons. South America has the most copper mines, and China is the source of the greatest production of refined copper. Copper is mined in countries all over the world, with the following countries accounting for the most of the mining:

Biggest Copper Producers (1)

Top 10 Copper Producing Countries

RankFlagCountryCopper Produced (Thousand Tons)
#1Chile FlagChile5,500
#2Flag of PeruPeru2,300
#3Flag of ChinaChina1,740
#4Flag of USAUnited States1,410
#5Flag of AustraliaAustralia970
#6Flag of congoDemocratic Republic of Congo910
#7Flag of ZambiaZambia740
#8Flag of CanadaCanada720
#9Flag of RussiaRussia710
#10Flag of MexicoMexico620

Recycling

Converting old scrap metal into refined copper accounts for almost 10% of the annual global copper supply and more than 30% of US annual supply. Fabricating operations including brass mills, copper smelters, refiners and ingot makers all serve as sources for recycled copper.

Demand for copper has steadily grown over the years as the global economy has expanded. Developing nations have increased their demand for copper as their infrastructure needs have expanded.

The main consumers of copper are China, Russia, the European Union, the United States and Japan. China, Russia and Eastern Europe have experienced the largest increases in copper demand and are likely to be big determinants of copper demand in the future.

The vast majority of copper demand derives from the following industries:

  1. Building Construction – These applications include electrical wiring, plumbing and weatherproofing of homes and commercial buildings.
  2. Transportation Equipment – Copper’s excellent conductivity makes it an important component in electric motors.
  3. Electric and Electronic Products – Integrated circuits and printed circuit boards use copper because of its excellent electrical conductivity properties. Copper is also found in electromagnets, vacuum tubes, cathode ray tubes and magnetrons in microwave ovens
  4. Consumer and General Products – Copper has strong anti-microbial properties and the US Environmental Protection Agency has approved the registration of certain copper alloys for anti-microbial materials including cookware, bed rails, handrails and doorknobs. Copper is also used in many musical instruments.
  5. Industrial Machinery and Equipment – Copper is used in stills for producing whisky and in glassmaking, engraving and printing equipment.

What’s the Price of Copper?

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What Drives the Price of Copper?

Copper has many uses in a diverse array of industries. Therefore, its price is a good barometer for the overall strength of the global economy. The following four areas represent the biggest determinants of copper prices:

  1. Emerging Markets
  2. US Housing Market
  3. Supply Disruptions
  4. Substitution

Emerging Markets

Because infrastructure represents such an important part of demand, emerging markets are a key driver of copper prices. Fast-growing countries such as India and China are accumulating vast amounts of wealth as their economies grow. As a result, they have a growing need for housing and transportation infrastructure and other types of construction.

Not surprisingly, Asia comprises an increasing share of global copper demand. The price of copper may depend greatly on the ability of these countries, as well as other emerging economies like Brazil, to continue to grow. A growth slowdown in emerging economies will almost certainly have a negative effect on copper prices.

US Housing Market

The US homebuilding industry uses copper in electrical wiring, roofing, plumbing fixtures and insulation among other things. Therefore, factors that affect US housing demand, including nonfarm payrolls, mortgage rates, US gross domestic product (GDP) and demographics, play an important role in determining copper demand.

The building construction industry comprises almost half of copper use in the United States. Investors should pay close attention to trends in this market for clues about future copper prices.

Supply Disruptions

Political, environmental and labor issues can have a big impact on copper prices. South America produces a significant amount of the overall supply of copper, particularly in Chile and Peru.

Historically, countries in this region have at times chosen governments that have nationalized the mining industry, such as in Bolivia in 2007. Such events can disrupt supplies and lead to higher prices. Events such as miner strikes can also produce supply disruptions and higher prices.

Finally, events such as earthquakes and landslides can slow down mine output. Investors in copper should pay attention to geopolitical news and natural disasters that affect the mining industry.

Substitution

The economic principle of substitution represents a risk of investing in any commodity, and copper is no exception. As prices climb, buyers will seek cheaper substitutions, if available. Cheaper metals such as aluminum now substitute for copper in power cables, electrical equipment and refrigeration equipment.  Nickel, lead and iron also compete with copper as substitutes in some industries.

Further Reading

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