Copper Prices May Go Up Too

Lynne Kiesling

This phenomenon has largely gone unnoticed, but for about the past year copper prices have been rising (prices are in cents per pound). As with other commodities, like oil, gold, manganese, and nickel, much of this price increase is a consequence of rising global demand due to economic growth, particularly in places like China and India.

Now there’s news of a labor strike at one of the world’s largest copper mines, in Chile.

Copper rose $70, or 0.9 percent, to $7,930 a ton on the London Metal Exchange. In New York, copper slid on speculation that stockpiles will enable the mine to weather a strike. Copper for delivery in September slid 1.75 cents, or 0.5 percent, to $3.6150 a pound on the Comex division of the New York Mercantile Exchange at 1:25 p.m. New York time.

This Bloomberg story also points out something interesting about the wage negotiations: the rise in copper prices over the past year has led to unprecedented profits for mining companies; in fact, this story about Rio Tinto’s profits indicates a six-month increase of 75% at the same time as copper prices have risen 79%. The labor union at the Chilean mine, seeing this profit increase, sees this as a bargaining opportunity. It has the hallmarks of a story of labor and capital negotiating to split the Ricardian rents associated with ownership of extraction rights to a scarce natural resource.

Another example of market processes in this area comes from higher prices inducing more mining in places like Australia:

“The list of new mines coming on stream is the longest I can remember since the late 1980s,” said Sandra Close, whose company, Surbiton Associates, tracks gold mining in Australia.


7 thoughts on “Copper Prices May Go Up Too

  1. Over the past decade the price of copper has a 0.97 correlation with the price of oil and a 0.93 correlation with the price of oil next month.

    They price of both commodities reflect the point that world growth and demand has outpaced supply.

    In the 1990s while markets were overinvestings in high tech they were underinvesting in basic materials. We are now seeing the consequences.

    Sometimes the private markets screw up just as badly as govt.

  2. Unnoticed? By who? Take a look at the share price of any base metal mining company you care to name, and the furious takeover action going on the sector. Zinc, copper, nickel, even lead, have been on a roll for about two years now. Once the story makes the cover of Newsweek it will be time to sell.

  3. Unnoticed? By who? Take a look at the share price of any base metal mining company you care to name, and the furious takeover action going on the sector. Zinc, copper, nickel, even lead, have been on a roll for about two years now. Once the story makes the cover of Newsweek it will be time to sell.

  4. Spencer,

    I disagree with your interpretation of the 1990s investment choices. Resources flow to their highest-valued use in expectation, but no one is omniscient. Once the discounted present value of capital flowing to high tech fell, capital flowed out of it. Problem is that until lately the discounted rate of return on basic materials has been sufficiently low to warrant no additional investment. Now that this rate of return is increasing, capital is flowing. That sounds like how markets work, not a screw up. I think your conception of markets is too perfectionist to be realistic.

    David,

    By the media and blatherati, except for the financial press that follows commodities markets. Lots of folks blather about oil prices, but no one outside of the trade has really been blathering about other commodities. Including butter: have you noticed the price of butter these days? Yikes!

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