Easy come, easy go? Just like the iron ore market before it, the rally in copper prices is over.
Last week, the industrial metal jumped to $2.30 a pound, it's highest value in 20 weeks, following the surge iron ore recently enjoyed when it spiked almost 20% in one day in early March, netting it its biggest one-day gain ever.
But just like iron ore, which has since tumbled 12% on the spot market, where pricing hit $63.30 a tonne, copper is also easing back from those highs and now trades for less than $2.23 per pound, down 3%. While it remains some 7% higher than where it started 2015, and 14% above the low it hit in mid-January of under $1.94 per pound, this could already be the end of the rally.
China, of course, has been the key to these rallies, as well as others seen in different commodities. The country accounts for 45% of copper's demand, consuming as much in one year as all of the consumption by western countries combined. The Financial Times says between 2000 and 2015, demand of copper in China grew at a compounded 12% annual rate, while in western countries, it fell 0.8%.
But that demand has slowed considerably as China's economy cools off, growing last year by just 1.8%. It may have used the same tonnage in 2015 as it did a decade ago, but those go-go days are behind us.
The miners understand this, even if the traders, who made the bets that sent the metal's price soaring, don't quite get it. Freeport-McMoRan (NYSE:FCX), the world's largest copper miner, says the market remains out of balance with too much supply. Even with scheduled cuts in production, the situation is likely to remain in surplus for at least 2016 -- and possibly longer, as production last year exceeded demand by about 147,000 tons.
Freeport itself is part of the problem, expanding projects like its Cerro mine in Peru and continuously adding to the world's supply. The miner expects the expansion project to double the mine's output this year after it goes live in the next month or so, adding some 270,000 tonnes to its total, or 500,000 tonnes altogether.
Fellow copper and gold miner Newmont Mining (NYSE:NEM) produced 48,000 tonnes of copper last year, more than triple the 13,000 tonnes it produced the year before.
Still, there is reason to be optimistic. China's demand for the metal hasn't contracted; it's only growing more slowly. Freeport-McMoRan estimates global demand for the metal will rise 2% annually, with supply finally matching demand in the middle of 2017 before going into deficit.
Perhaps, but if China's growth stalls faster than anticipated, and it creates a cascading effect elsewhere, that could delay copper from reaching equilibrium, meaning the enthusiasm that drove copper and other commodities to become one of the best-performing assets so far this year is probably not sustainable anyway.
Argentina's nationalized copper miner Codelco agrees, arguing the rally was "driven more by financial investors than any change in the fundamentals." It's even more sanguine about a recovery than is Freeport and says it will be at least two years before the situation changes.
So, copper's surge was nice while it lasted, and investors probably shouldn't expect it to continue.