Commodities aren’t like stocks and bonds. For one thing, they don’t pay income to investors, with, say, dividends or coupon payments. For another, they don’t release any earnings updates. That makes them hard to put a price on: you can’t use traditional valuation metrics like the price-to-earnings (P/E) ratio or some discounted cash flow analysis.
In mid-May, the price of copper reached nearly $11,000 a ton, with everyone talking at that time about how its demand would skyrocket, thanks to AI and electrification. But since then, the red metal has been heading south, and this week it dropped below $9,000 for the first time since April. It’s still higher than where it started the year, but not by much.
And there are three big reasons for that.
China’s hit the brakes on its investment spending. China accounts for around 50% of total global copper demand – it’s been using loads of the metal to build major renewable energy power plants. But this year, that spending slowed way down.
EV production has shifted into a lower gear. Electric-powered vehicles have been the next-biggest demand driver. They simply use more copper than fossil-fuel-powered vehicles, hybrids, or plug-in hybrids. But there’s an excess supply of EVs in China now. And with demand declining for EVs in Europe and the US, demand for copper from those manufacturers is falling too.
The unexpected supply glut. A slowing economy in China has taken the shine off of the appeal of holding onto copper stocks. Stockpiles of copper had been building recently – perhaps in hopes of new Chinese stimulus measures. But with none being announced, that stash has been exported to the West, and the massive supply surge has hit the copper price hard.
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