In recent months, investors have turned their attention to energy markets, with oil taking one of the steepest hits it has seen in quite some time. Inflated supplies and anemic demand have pushed the fuel to record lows in 2014. Meanwhile, another commodity has also been feeling the pinch.
Copper futures fell to their lowest level in over four years; copper for December delivery closed last week at $2.8355 a pound – its lowest closing price since June 8, 2010. Below is a nine-month chart of copper for January delivery (data as of 12/29/2014).
Be sure to also check out the Best and Worst Performing Commodities of 2014.
Copper Miners Feel the Pinch
Copper miners have also taken a steep plunge alongside copper futures. Below is a 9-month chart of the Global X Copper Miners ETF (COPX). Since its 52-week high of $11.21 on July 29, 2014, the fund has lost roughly 35% (data as of 12/29/2014).
Be sure to also see the Best and Worst Performing Commodity Producers of 2014.
China's Slowing Economy
Copper’s decline is largely due to the shaky economic story unfolding in China, which is one of the largest consumers of the industrial metal. Chinese consumption amounts to roughly 40% of the world’s copper.
But recently, investors have grown considerably more leery of China, and subsequently the markets in which the country has the most influence in. In an effort to jump-start the economy, Chinese officials have introduced a number of stimulus measures; the most recent measure was announced last week, which placed a ban on investors using low-grade corporate debt as collateral to borrow cash.
Despite stimulus efforts, however, the growth of China’s economy continues to slow; in the most recent quarter, GDP annualized growth fell from 7.8% to 7.3% year-over-year.
The Bottom Line
In the coming months, and perhaps well into 2015, copper futures and miners will likely take their cue from China. In the short-term, China’s economic stimulus measures may not be enough to alleviate downward pressure on copper prices. However, if China successfully manages to implement structural reforms that are aimed at sustaining economic growth for the long term, copper may be able to make a turnaround.