Lower demand for copper has in the past caused its going rate to sharply decline. However, the news hardly ever mentions copper prices. So what does cause copper’s going rate to decline?
If you’ve been doing scrap metal recycling for a while now, you might’ve recently noticed a drop in the price of copper. Last week (18 Feb ’13), recycling facilities in and near Raleigh, NC saw a country-wide drop in copper prices by several cents per pound, an indication that global demand for copper is on the decline. In reality it is not decling, but it is growing slower.
Nationally and abroad, for years construction and plumbing industries have used copper wires and pipes for new buildings and maintenance. When the need for those buildings slows, companies’ and countries’ demand for scrapped and newly mined copper tends to fall as well, proportionally affecting its going rate in the market.
China has some to do with the price of copper today.
“China accounts for about 40% of global copper consumption and the housing sector is a major driver of demand there.” an article in the Wall Street Journal says. Another source, NBCNEWS, agrees, but goes on to add that China’s government may be aiming to lower its rate of more building, and less building therefore means less demand for copper.
That lowering demand in turn means a lowering price offered to scrappers at places like Raleigh Metal Recycling.
China, however, isn’t the only probable reason for this shift. The same NBC article reports that on a domestic scale, the urge to build within the United States has seen a slight decline, though it is expected to rise from a “builder sentiment” of its current 46 to 48 later this year. A page on Bloomberg.com shows that, in terms of builder sentiment, “…any number over 50 indicates that more builders view conditions as good than poor.” Its lowest point since March of 2012 was in May, when it was at 24, and it was at 47 the first of this year.
A lesson from the past
The U.S. housing crisis in 2008 helps reveal the relationship between copper prices and the health of an economy. Assets, in this case houses, became the flashpoint to the crisis. More and more houses began to accrue value at surprising and delightful rates to homeowners. The demand for new houses then did, too.
Many people bought second houses by borrowing money against the appreciated mortgages of their first homes. At the same time banks loaned money for new houses to more and more people while allegedly knowing many would quickly fall into debt, a strategy to make the banks more money–the more who owed money to the banks, the better for the banks. This quickly sucked value out of houses nationwide, though, and most everyone who’d purchased new houses went deeper and deeper into debt.
Many great consequences resulted. Almost everyone ended up owing money they couldn’t pay due to houses’ sudden loss in value. Demand to build new houses then stagnated. People stopped spending, and therefore businesses stopped investing in assets like capital for new construction. This was when, as depicted in the chart below, the price of copper dove alongside the stock market, quality mortgages and business investments.
Morals are in every story
The moral of the story is that both major global and national changes affect pricing right here at home. The difference between now and 2008 is that China isn’t suffering like the U.S. was, and the U.S. construction industry today is expected to increase building before the year’s end.
Overall, the situation really goes to show that the country and world is smartening up. New systems have been put in place to prevent such tumult from recurring. We are becoming more watchful. If the lower copper prices still seem slightly eery, one must recall that patience is a virtue. 2013 is a new age, and prices will likely climb again shortly.
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