Will China Send Copper's Price Upward?

Wednesday, April 6, 2016

Copper isn't the most precious of precious metals, but chances are that the value of the metal is going to start heading upward. In what seems to be a strange play, China is looking to take a large share of the world's copper for itself. Today, we'll talk about why China wants the copper, what they're doing to solidify their share in the metal, and what this will likely do to the price of the metal.

Why China Wants So Much Copper

Copper is a great metal. It is used in the manufacturing of several products around the world and even used in currencies. So, it makes sense that China wants to own a huge chunk of the world's supply of the metal. You see, China is the world's second largest economy, but when it comes to consumption of raw materials, the country comes in at number one! Think about it, when you go to the store and buy goods for your home, parts for your car, or even toys for your kids, chances are that when you turn the products upside down and look at the sticker, at least 1 or 2 items that you bought will say “Made in China”. Well, when it comes to the cost of raw materials, copper is one of the more expensive materials on the market. So, by getting all it can now while the price of the metal is low, China is making a power play.

What China Is Doing To Get Their Hands On The Copper

China needs copper, and a lot of it, if they want to do what they're planning, and their actions show that they are willing to make big moves to get their hands on massive amounts of the metal. In fact, in order to secure a strong supply of copper, China has been and is looking to continue buying copper mining assets around the world. While some may second guess the country's decision to do this, I think it's a great idea. Here's the argument surrounding China's plans...

  • The Bearish Argument – The bearish argument is relatively simple. The cost of copper has fallen in a big way as of late. In fact, the price of copper has fallen so far that some mines are shutting down because it is not worth the cost of producing the metal at the moment. Therefore, some argue that China is making a huge mistake as the value of copper is likely to fall further.
  • The Bullish Argument – While the bearish argument is understandable, the bullish argument makes more sense to me. The bulls say that China is making the right choice on this one. They argue that since the value of copper is down in such a big way, China is getting a great deal at the moment. After all, with mines closing, it's not going to be difficult for the country to get a great deal on mining assets. Ultimately, copper is going to go back up in value. While no one knows how long that might take, we do know it's going to happen. As such, buying the assets now will position China incredibly well for future profits.

What This Will Do For The Price Of Copper

China's demand for copper is growing in a big way, and like any other commodity, copper's price is largely dictated by the law of supply and demand. With that considered, demand is rising, and with mines closing, supplies are dwindling. As a result, I'm expecting to start seeing upward movement in the value of copper relatively soon. 

Joshua Rodriguez

Joshua Rodriguez is an avid financial professional. He is the owner and founder of CNA Finance, a partner at Modest Money, and a writer for US News & World Report, Investing.com, and more! Joshua takes a strong fundamental approach to market analysis and enjoys offering his take on what we can expect moving forward. You can reach Joshua at cnafinancehelp@gmail.com.