As many of you know, copper is often seen as an indicator of economic health, historically falling when overall manufacturing and construction is in contraction mode, rising in times of expansion.
That appears to be the case today. Currently trading above $3 a pound, “Doctor Copper” is up close to 28 percent year-to-date and far outperforming its five-year average from 2012 to 2016.
Several factors are driving the price of the red metal right now. Manufacturing activity, as measured by the purchasing manager’s index (PMI), is expanding at a pace we haven’t seen in years in the U.S., eurozone, and China. The U.S. expanded for the 100th straight month in September, climbing to a 13-year high of 60.8.
Speculators are also buying in response to word of copper shortages in China, despite September imports of the metal rising to its highest level since March. The world’s second-largest economy took in 1.47 million metric tons of copper ore and concentrates last month, an amount that’s 6 percent higher than the same month in 2016.
Why Copper Is the “Metal of the Future”
Why are we seeing so much copper entering China? One reason could be battery electric vehicles (BEVs), which requires three to four times as much copper as traditional fossil fuel-powered vehicles.
China is already the world’s largest and most profitable market for BEVs, and Beijing is now reportedly working on plans to curb and eventually ban the sale of fossil fuel-powered vehicles, according to the Financial Times. This would place the Asian giant in league with a number of other powerful countries similarly crafting bans on internal combustion engines within the next 25 years, including Germany, France, Norway, the United Kingdom and India.
Because of the sheer size of the Chinese market, this move is sure to delight copper bulls and investors in any metal that’s set to benefit from higher BEV production. That includes cobalt, lithium, and nickel.
