What Falling Copper Prices Mean For The Average Investor

There can be no doubt, now, that copper prices aren’t at their strongest. Mining stocks have recently fallen on the slugging price of copper, and the FTSE (Financial Times Stock Exchange) 100 is near a 1-month low. Although copper is far from the only commodity that puts pressure on the FTSE, IrishNews.com pointed out that the prices of copper and oil may have had the largest effect on this slump, writing earlier today, “The FTSE 100 index fell 73.6 points to 6112.02, as the falling copper price and a slip in Brent crude took its toll on the mining sector.”

But for ordinary investors, watching places like the FTSE and the price of copper might seem a bit out of the realm of realism. You pay attention to commodities like oil and gold and generally have a feel for where they may head. But copper? How does that factor into today’s global economy—and what does it mean when the price of copper is low? Here are a few elements you’ll want to consider:

• Alternative base metals are important to consider. Aluminum, nickel, lead, and iron all qualify as industrial metals, and when the price of copper is high, you might expect some sectors to turn to cheaper alternatives. The reverse is also true. When the price of copper is low, anyone buying base metals might be more attracted to it. These are basic rules of effective pricing and supply and demand, but they’re worth thinking about.
• Strong copper miners and copper mining countries suffer when copper prices are low. Chile, for example, the largest producer of copper in the world, greatly depends on a stable price of copper. While this might not seem that important to investors from the U.S., it does, indeed, have a major impact on local economies that depend almost entirely on copper. In the northern regions of Chile, copper mining can account for up to 50 percent of local economies.
• Copper’s price says something about Chinese demand. The days of looking only to the U.S. as the driver of global industrial demand, if they ever existed, are no longer here. China is one of the major drivers of copper prices thanks to its wide industrial sector and demand for the inexpensive metal. While China grew from 2005 to 2011, so did the price of copper. Investors who are looking for signs of Chinese industrial slowdown would be wise to, at least, keep an eye on the price of copper.

If most of your investing is in long-term trades of conservative investments like mutual funds and index funds, then the price of copper probably won’t be a major concern for you. But if you want to find one of the familiar symptoms of industrial slowdown or acceleration, the price of copper is one good barometer that you’ll want to add to your arsenal. And if you’re interested in investing in base metals at all, copper prices will be one of the most vital statistics you'll use to follow the markets.