Overview of Copper Futures:
Copper is one of the earliest metals discovered by humans, and it has been used for over three thousand years. Copper metal, symbolized by Cu, has an atomic weight of 63.54, a specific gravity of 8.92, and a melting point of 1083°C. Pure copper is light rose or pale red in color, and when an oxidized copper film forms on the surface, it appears purple.
Copper possesses many valuable physical and chemical properties:
High thermal and electrical conductivity, second only to silver, making copper a crucial material in the electronics and electrical industries.
Strong chemical stability and corrosion resistance, making it suitable for containers that contact corrosive substances. This property is widely used in the energy, petrochemical, and light industries.
High tensile strength, weldability, plasticity, and ductility. Pure copper can be drawn into fine copper wire or made into thin copper foil. It can form alloys with zinc, tin, lead, manganese, cobalt, nickel, aluminum, iron, and other metals. Copper is used for various transmission and fixed parts in mechanical and metallurgical industries.
A combination of rigidity and flexibility with a diverse appearance, often used in architecture and decoration.
In terms of country distribution, global copper resources are mainly concentrated in Chile, the United States, Zambia, the CIS, and Peru. Chile holds the world's largest copper reserves, with proven reserves of 150 million tons, accounting for about one-quarter of the world's total reserves. The United States has 91 million tons in proven reserves, ranking second, followed by Zambia.
Copper production rapidly expanded from the 1950s to the 1970s. In 1950, global refined copper production was only 3.15 million tons, increasing to 7.7 million tons by 1974. However, two oil crises led to a contraction in copper consumption, causing a significant decline in copper production. In the 1990s, copper production once again rose rapidly, with Chile being particularly notable. By 1999, Chile surpassed the United States to become the world's largest refined copper producer, marking the end of the United States' dominance in copper production. In 2005, global refined copper production reached 16.568 million tons, an increase of 4.7% year-on-year.
Copper consumption is largely concentrated in developed countries and regions. Western Europe is the largest consumer of copper globally, with China surpassing the United States in 2002 to become the second-largest market and the largest copper consumer. Since 2000, the growth rate of copper consumption in developing countries has far exceeded that of developed countries. The share of copper consumption in Western Europe and the United States has decreased, while Asia (excluding Japan), represented by China, has become the main driver of copper consumption growth. In 2005, global copper consumption was approximately 16.964 million tons, a 1.5% increase from 2004, with China leading the growth with 3.665 million tons consumed.
Major Exporters of Copper Ore: Chile, the United States, Indonesia, Portugal, Canada, Australia, etc.
Major Importers of Copper Ore: Japan, China, Germany, South Korea, India, etc.
Major Exporters of Refined Copper: Chile, Russia, Japan, Kazakhstan, Zambia, Peru, Australia, Canada, etc.
Major Importers of Refined Copper: China, the United States, Japan, the European Union, South Korea, Taiwan, etc.
Main Factors Affecting Copper Futures Prices:
Supply and Demand: According to microeconomic principles, when supply exceeds demand for a product, its price falls, and vice versa. At the same time, the price also influences supply and demand: when prices rise, supply increases and demand decreases, and vice versa. Therefore, prices and supply-demand are mutually influential.
An important indicator reflecting supply and demand is inventory. Copper inventory is divided into reported and non-reported inventory. Reported inventory, also known as “visible inventory,” refers to inventory in exchange warehouses. Major exchanges for copper futures trading include the London Metal Exchange (LME), the COMEX branch of the New York Mercantile Exchange (NYMEX), and the Shanghai Futures Exchange (SHFE). These exchanges regularly report designated warehouse inventories.
Non-reported inventory, also known as “hidden inventory,” refers to the inventory held by producers, traders, and consumers globally. These inventories are not regularly disclosed, making them difficult to track. As a result, exchange inventories are often used as a measure.
Domestic and International Economic Conditions: Copper is an important industrial raw material, and its demand is closely tied to the economic environment. During economic growth, copper demand increases, driving up prices, while in economic recessions, copper demand shrinks, leading to a decline in prices.
Two important indicators for macroeconomic analysis are economic growth rate (or GDP growth rate) and industrial production growth rate.
Import and Export Policies: Import and export policies, particularly tariff policies, control the import and export volume of a commodity by adjusting its costs, which helps balance domestic supply and demand.
Changes in the Copper-Using Industry: Consumption directly affects copper prices, and the development of copper-using industries impacts consumption. For example, in the 1990s, the demand for copper in the construction industry, particularly for copper pipes, surged, making construction the largest copper-consuming sector and driving copper prices up. Since 2003, China’s real estate and electricity industries have greatly boosted copper consumption, thus supporting copper prices. In the automotive industry, manufacturers are advocating for aluminum to replace copper to reduce vehicle weight, decreasing copper consumption in the sector. Moreover, copper’s application range is expanding, with significant roles in medicine, biology, superconductors, and environmental protection. IBM, for example, has replaced aluminum with copper in silicon chips, marking the latest breakthrough in copper’s application in semiconductor technology. These changes will affect copper consumption to varying degrees.
Copper Production Costs: Production costs are a key factor in determining commodity price levels. Copper production costs include smelting and refining costs. Different mines have different production cost calculations, but the most common economic analysis uses “cash flow breakeven costs,” which decrease as by-product values increase. Since the 1990s, production costs have been on a downward trend.
Currently, the average comprehensive cash cost of pyrometallurgical copper production in Western countries is about $0.70-$0.75 per pound, and hydrometallurgical production costs about $0.45 per pound. Hydrometallurgical copper production accounts for about 20% of total output. Domestic production cost calculations differ from international ones.
Fund Trading Direction: Although the history of the fund industry is long, it only developed rapidly in the 1990s, and during this period, the degree of fund involvement in commodity futures trading increased significantly. Looking at the copper market evolution over the past decade, funds have played a role in accelerating major market trends.
Funds come in various sizes and with different strategies. Generally, funds are divided into two main types: macro funds (e.g., arbitrage funds), which are large in size, ranging from tens to hundreds of billions of dollars and engage in long-term strategic investments, and short-term funds, managed by CTAs (Commodity Trading Advisors), which are smaller in scale, usually in the tens of millions of dollars, and rely on technical analysis for short-term operations.
Looking at the copper price and non-commercial positions (which are generally considered speculative positions held by funds) on COMEX, there is a strong correlation between copper price fluctuations and fund positions. Additionally, because funds tend to have a deep understanding of the macroeconomic fundamentals and can anticipate market trends, understanding their movements is key to grasping market trends. From recent years, especially since 2005, funds have been a major driver of rapid and significant increases in copper prices.
Price Fluctuations of Related Commodities (e.g., Oil): Both crude oil and copper are essential industrial raw materials, and their demand reflects economic conditions. In the long term, the prices of oil and copper are positively correlated with economic development. Since both oil and copper are closely linked to the macroeconomy, there is a certain degree of positive correlation between oil and copper prices. However, this is only a trend-based alignment, and in the short term, the positive correlation between oil and copper prices is not particularly strong.
Exchange Rates: Copper is traded internationally in US dollars, and currently, most major currencies adopt floating exchange rates. With the launch of the euro on January 1, 1999, the international foreign exchange market became a three-way competition between the US dollar, euro, and Japanese yen. Since the exchange rates between these major currencies fluctuate significantly, the international copper price, quoted in dollars, is affected by exchange rates. This can be seen from the dramatic depreciation of the dollar against the yen in 1994-1995, the continuous weakness of the euro from 1999-2000, and the depreciation of the dollar from 2002-2004.
Based on past experience, changes in the yen and euro exchange rates can cause short-term fluctuations in copper prices but do not alter the long-term trend in the copper market. Although exchange rates influence copper prices, the fundamental determinant of copper price trends remains the supply and demand relationship for copper, with exchange rates only potentially affecting the extent of price fluctuations.
