March 22, 2011
With the volatility and complexity of the stock market these days, the trading of physical products: food, metals and electricity, known as commodities, is all the rage, but what determines a commodity’s worth? Where does it come from? How much is in supply? How is it connected with our everyday lives? This is the second piece in our commodities series. See the first piece on lithium
Click here for Copper Slideshow
“What does a microwave, a fire extinguisher and the Statue of Liberty have in common?"
All three contain some form of copper — a common mineral that helped make possible the electrification of the world early in the last century. Its sale is a leading indicator for a healthy construction business and a growing global economy. Mystery novelist Dashiell Hammett called it “the red harvest.” It’s copper and the world keeps showing a hungry demand for it. The price has rocketed up by a factor of five in the last decade, and is currently trading at around $4.60 a pound. It may even prove to be one of the economic stalwarts of the Japanese tsunami disaster.
Why It’s Valuable
Copper may not have the same investment pizzazz as its cousin gold. But as base commodities go, it is a dependable workhorse. It is an excellent conductor of electricity, which also happens to be exceptionally resistant to decay and moss, and its abundance throughout the world makes it the first choice for wiring a building. Plus it also shows up in water pipes, coins, pots, air conditioners, car radiators, refrigerator coils, ammunition, semiconductors and circuit boards.
Where It Comes From
The world’s top producer is Chile, with 543 kilotons per year, about one-third of the world’s supply. Last autumn’s dramatic underground rescue took place in a Chilean copper and gold mine. But most of the world’s mines are terraced open pits. One of the most dramatic examples is the Bingham Canyon mine outside Salt Lake City, the most productive excavation in the history of all minerals, which swallowed three towns over its life and is now big enough to be visible from the space shuttle. The booming prices have persuaded global giants like Freeport-McMoRan and Anglo American to squeeze more ore out of existing mines. Smaller companies known as “juniors” are also energetically doing exploration work in places like Peru, Mongolia, Zambia and various corners of the U.S.
The Copper Market
Copper took a serious nosedive during the 2008 crash, but has rebounded with a vengeance. “When global stability is threatened, copper tends to trade low,” said Bart Melek, an analyst for TD Securities. Steady construction demand in China helped copper’s recovery for the last five years. Japan’s coastal cities and its utilities are going to go through an intense period of rebuilding, meaning that developers are going to be acquiring a lot of copper for new buildings along the Japanese coast.
One intriguing factor is that the demand for copper doesn’t tend to reflect a lot of speculation because the metal is bulky and difficult to store in warehouses for long periods of time. It also oxidizes over time and becomes perishable, says Melek. When the price gets high, companies unload their surpluses. During a price spike five years ago, thieves in some cities knocked down streetlights to strip away the copper wiring for sale to scrap dealers. The purloined copper has a lot of company there in those yards — behind only iron and aluminum, copper gets recycled more than any other metal.
A Promising Future
It is also tricky to substitute other materials for copper, especially in the interiors of a building. Some companies with a large rate of consumption, such as refrigerator manufacturers, are contemplating making the switch to aluminum, which is currently about one-third the price-per-pound. Aluminum carries a risk of catching fire in semiconductors, according to Melek. It’s also even more bulky than copper, making a manufacturing systems retrofit a chore that may not be worth it in the end. “Core demand for low-voltage electricity most likely will remain copper,” he said.
Back to Land Lines? Cell Phones May Be Dead by 2015 (The Fiscal Times)
Peru Seeks Copper Smelter for Anglo American, Rio Tinto Mines (Bloomberg)
The Great Copper Heist (Businessweek)