Copper at 6-year low as demand from China wanes
Canadian mines invested in 2011 when prices were high, now they're producing more when demand is low
Copper is trading at a six-year low as that reflects a decline in world demand even as production ramps up.
Copper contracts traded below the $2 US level on Canadian markets on Monday, a low not seen since 2009. Today, they're barely off that floor at $2.05 lb.
The red metal, often seen as bellwether of the world economy, peaked at $4.48 in 2011, a time when thieves pulled copper out of walls and stole wiring to make money from the metal.
But China's slowdown has resulted in less demand for copper and in the rest of the world, demand is flat or lower. The price of copper is down 27 per cent since the beginning of the year.
"A lot of it does have to do with China," said TD Economics commodities analyst Dina Ignjatovic, "China demand fell because construction is down."
Canada a copper exporter
Copper exports by Canada topped $6 billion in 2014 and production here grew by 10 per cent last year, despite the falling prices, Statistics Canada figures show.
That's because many companies invested in new mines in 2011, which have come on stream only recently, pushing production higher.
"Prices have fallen, but so have the cost curves," Ignjatovic told CBC News. She pointed to lower fuel prices and the exchange rate, as mining companies pay their Canadian workers Canadian dollars, but the metal is priced in U.S. dollars.
One of the reasons copper production has remained high in the face of falling demand is that currencies in key copper-producing countries like Chile, Australia and Canada have fallen sharply against the U.S. dollar.
That means the cost to produce the metal in these countries is sustainable at lower prices.
Nonetheless there has been a lot of careful cost control in the industry, as well as shelving of projects where the cost of production is not in line.
Lower for longer
Barclays put out a recent report that predicted the low prices for copper would linger for longer than they have in past downturns, such as the 1980s global economic slump and the late 1990s Asian crisis.
Barclays commodities analyst Dane Davis argues China boosted demand so sharply that its slowdown would be longer and more sustained that downturns in the past.
TD's Ignjatovic said she expects demand for copper to pick up in six to 12 months as world demand improves, but believes the global oversupply will keep a lid on prices.