This document provides an overview of the copper market, including its major uses in industries like construction and electronics. It discusses the leading copper producing and consuming countries and how inventory levels and price have an inverse correlation. Seasonal trends and demand shocks from economic activity in China and the US are also noted to influence copper prices. Specific events like labor strikes, tax disputes, and infrastructure investment expectations are highlighted as impacting copper supply and prices in recent years.

1. A primer on Copper
Yaswanth Bijjam
(Data as of 01 Feb 2017)

2. Contents
• Uses of copper
• Countries by Production and Consumption
• Contracts
• Inventory and Prices
• Seasonality in Prices
• Demand shocks affecting prices
• Events affecting prices

3. Copper in Industries
• Copper was first used in coins and ornaments starting about 8000
B.C., and at about 5500 B.C., copper tools helped civilization
emerge from the Stone Age.
• Presently, copper is used in building construction, power generation
and transmission, electronic product manufacturing, production of
industrial machinery and vehicles
• Building construction is the single largest market, followed by
electronics and electronic products
• Because of its properties - high ductility, malleability, and thermal
and electrical conductivity, and its resistance to corrosion, copper
has become a major industrial metal, ranking third after iron and
aluminium in terms of quantities consumed.
• Copper is an essential component in the motors, wiring, radiators,
connectors, brakes, and bearings used in cars and trucks.
• The average car contains 1.5 kilometres of copper wire, and the
total amount of copper ranges from 20 kilograms in small cars to 45
kilograms in luxury and hybrid vehicles.

4. WORLD COPPER PRODUCTION(in mn metrictonnes)

5. REFINED COPPER USAGE

7. Price V Inventory
• Observe the next two slides - There is an obvious negative correlation
between the price and the inventory levels.
• But it is little risky to trade based on the inventory level changes because
the price and inventory figures are very co incidental. I mean it is difficult
to identify the lead / lag relation . Not impossible but have to be very
prudent and cognizant to predict the inventory trend.
• Abnormal changes in the inventory levels are likely to create a trend in
prices which can be identified easily.

8. MCX Copper Spot Index V Inventory
MRSELSCU - is calculated on a daily basis using the inventory data from LME,
Shanghai and COMEX exchanges.

9. CME Copper Spot V Inventory

10. Seasonality in Prices
• Commodities in general have seasonal trends because of the
economic activity cycles. Next slide shows the monthly price
trends of past 15 years.
• Traders can take advantage by writing far month options
based on price trend.

11. Seasonality in Prices

12. Seasonality in Prices
• Good probability that prices may come down
in the month of June, traders can at least cash
the time value by writing call options .

13. Fed rate Hike – Dec 2016
Copper, along with other commodities moved lower after the US rate
hike on Dec15, 2016 ( Red Candle around at 00 30 Hrs)

14. Demand shocks affecting prices
• Studies regarding the spill over effect on commodity markets show
that the real economic activity in China and US has significant effect
on commodity prices.
• One standard deviation shock to the trend monthly growth rate of
China’s industrial production (about 3%, or nearly 1 % of GDP)
causes to a rise in copper prices of about 6 % after six months.
• It is also proved that real activity growth shocks in the U.S., which
tend to be more persistent domestically and have larger effects on
the rest of the world than shocks that originate in China.

15. Events affecting prices
• With Donald Trump getting elected as president and the
expectations of investing in infrastructure, copper surged
immediately after the election results
• Recently (Dec- Jan 2016) workers union at BHP Billiton (which owns
worlds largest copper mine in Chile) decided to for a strike over
wages, causing the price of copper price to rise.
• Also, BHP's Copper production for the half year to end December
fell 7% to 712,000 tonnes due to a power outage in September-
October.
• Resource Nationalism- A tight government control on national
resources leads to delays in projects and production of output
• For Eg- Mongolian Tax Authority claim (2014) -Rio Tinto’s Copper
mine dispute on a tax penalty delayed the mining expansion and
hence a dip in copper supply.
• Zambian government (2014) reviewed the taxes to boost the
revenue but this has led to a temporary shutdown of smelters and
stock piles increased.

16. Miscellaneous
• One can trade on mining companies as the copper price changes.
• Indian stocks having exposure to the copper price-
• Hindustan Copper Limited, Hindalco Industries Limited, Nissan
Copper Limited India. Miscellaneous
References– Bloomberg Finance L P , International Monetary Fund - Publication
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