Copper prices have been responding to changing expectations about the prospects for the global economy. Prices are down 15 percent since March and 3 percent for the year, in large part due to ongoing concern about the European community’s ability to resolve its debt crisis and the impact of austerity measures by an assortment of European governments – worries compounded by the deceleration of China’s growth and resulting lower demand from the world’s largest consumer of the metal.
Tepid economic indicators in the U.S. market, where the recent run of manufacturing growth has been slowing down, is also tempering copper traders’ expectations regarding demand for commodities such as copper and oil, though recent indications of a recovery in the nation’s housing market has provided some support for prices, seen in a five-day run of rising futures over the past week. Some of this is related to the Federal Reserve’s continued commitment to measures such as Operation Twist to keep interest rates in the basement as a boost to economic activity as it revised downward its expectations for overall U.S. growth this year. Many analysts and investors were hoping for more aggressive stimulus but the bank is holding fire for now.
The long-term outlook for copper remains robust based on growth in demand from developing countries driven by demographics and the need for infrastructure development more than by the short-term prospects of global economics, a point made by Richard Adkerson, president and chief executive of copper miner Freeport-McMoRan Copper & Gold Inc., in a Wall Street Journal interview this week, and echoed in a presentation from Andrew Harding, CEO of Rio Tinto PLC.
The International Copper Study Group’s monthly report on world copper supply and demand showed a production deficit in March 2012 of 135,000 metric tonnes. World consumption of copper grew 9 percent in the first quarter compared with Q1 2011, most of it attributed in the ICSG’s Copper Bulletin to a near-doubling of net imports and 32 percent consumption increase by China. Consumption in Europe and Japan was down 9 percent and 6 percent, respectively.