On Further Fall In Copper Price

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Includes: CPER, CUPM, JJC
by: Ivan Kitov

Summary

The price of copper will likely keep falling.

The fall horizon is two years.

The price level will return to levels seen in 2005.

Since 2009, we have been reporting that the evolution of various components of CPI and PPI in the United States is not a random process, but rather a predetermined one with long-term sustainable trends. Using these trends, one can predict consumer and producer price indices for various goods, services and commodities. Here we revisit the producer price index for copper ores.

Figure 1 displays the difference between PPI and the index for copper ores since 1988. This difference has a remarkable history: no big change between 1988 and 2003, and then a sudden surge in the copper index started. The peak was reached in the middle of 2006. It survived before the second quarter of 2008. Then the copper index dropped by almost 300 units back to the PPI level. In 2009, the PPI of copper increased above 500. One may consider these changes as associated with the rise-fall cycles in oil price, but there is no one-to-one correspondence.

We have to admit that there is no sustainable trend in the copper index and the future of the copper ores index is difficult to predict in the long run. Currently, the difference is right in the middle between the previous trough and zero line. Moreover, it has reached the level of the previous local peak in 2007 (see Figure 2 for relative prices). Therefore, the PPI of copper may go any direction in 2014. One has to wait before the next robust sign of the future evolution. Considering the overall fall in commodities (oil, various metals, grains, etc.), I would not exclude a further fall in the PPI of copper at a two-year horizon down to the 2005 level.

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Figure 1. Evolution of the price index of copper ores relative to the PPI.

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Figure 2. Evolution of the difference of the PPI and price index of copper ores normalized to the PPI. All troughs have the same depth

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.