Factors affecting copper prices include supply, demand, pressure on commodity markets, and current stockpiles already in place. Given these variables, and the fact that many operate independently of the others, the volatility copper often experiences is something many expect to continue for the long term. While these factors lead to a wide range of copper prices over time, there are influences that also affect each of these areas and contribute to the overall price to a lesser degree.
One of the biggest factors affecting the price of copper is the demand. Copper is a material used in a great deal of applications, including new construction and remodeling. If economies are growing, then the demand for new construction, and more copper, also grows along with it. Building, for example, accounts for approximately half of all copper use, with engineering accounting for nearly 25 percent, and electrical applications accounting for approximately 17 percent. Growth in Asian economies in particular, which account for 50 percent of all copper use, is another important factor.
Another factor affecting prices is the supply. While supply may increase or decrease over time, the trend tends to show an overall decrease in the amount copper being mined. Copper production comes mainly from America, Europe, and Asia, which combine for more than 90 percent of the copper produced in the world. As less copper is produced, the more precious of a commodity it becomes, and thus the higher copper prices tend to be. Counteracting this effect is the mining of more copper, finding new stores of copper, or finding other price-competitive materials that can take the place of copper.
The increase in various hedge funds that have a focus, or at least a partial focus, on commodities also affects prices. The managers of these funds look at data and try to determine supply and demand figures. While this obviously has a real-world correlation, such funds can increase volatility in copper prices, especially in the short term. In the past, prices tended to change more gradually, but there are more spikes, both high and low, in the current marketplace.
To help offset some of those pressures on the price of copper, stockpiles may be used with more regularity. In fact, copper stockpiles had reached their lowest levels in six years in 2010, which led to higher prices that year. As long as demand continues to outpace production, then copper prices will likely continue to remain high. Using existing stockpiles of copper is only a short-term solution to pricing pressures, however.
