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Is investment trading artificially hiking the price of copper?

 

  • Yes - and it needs to be controlled 66%
  • Yes - but it's an essential economic mechanism 26%
  • No - it doesn't have a significantly dominant effect 8%

 

Comment from Jeffery Burghardt, Vice President of North American Metal Procurement and Global Utilities at Luvata:

I have been involved in the copper industry for over 30 years now and have certainly seen lots of changes - one of those changes has been the price of copper and its rate of change. Today, the price of copper changes more in one day than it used to move in a year.

What is behind this change? Well, if you look at our survey results, over 90% of the respondents believe it is being influenced by speculators, and I fully agree. Several thoughts come to mind on this topic.

First, this is not just a copper issue or a metal issue; it is an issue with most commodities - including energy. Over the last 10 years we have seen a dramatic increase in speculation in commodity markets, and most prices have increased dramatically. This first happened in the energy sector and then spilled over in to the metal markets. As a result, we have seen phenomena such as record high prices for various commodities when the fundamentals of supply and demand indicated that the price should be low. Fundamentals are not driving the price. They should be.

Instead, commodity prices are being determined by speculators and the amount of money they are pouring into the markets. This is very concerning for me. If we accept that prices no longer reflect fundamentals and costs, what is to stop them from going significantly higher – or anywhere, for that matter? What would happen if the price of gasoline tripled from today’s price? My thought is that nothing good comes of this. 

Second thought: how do you stop or reduce speculation in commodities? This is a very interesting question. If someone wants to invest in energy or metal, is that wrong? On the surface there certainly doesn't seem to be anything wrong with this - people invest in property, stocks, bonds, so why not commodity markets? Up until now, that has been pretty much the view. These are open markets that can be entered into as speculators choose. But in my view, this is no longer acceptable. The markets are not set up to handle this kind of volume with the current parameters. Speculators have way too much impact on price and this will only get worse if something is not changed.

So what needs to happen? the simple answer is to reduce speculation. How? There are a number of different ways to accomplish this that are being debated but detailing those is best left for another time. The key point is that some type of action needs to be taken by the regulators that oversee these markets.

Will this happen? Clearly regulators are not interested in taking action simply because of the price of copper, but energy is a whole different matter and much more political. High energy prices touch all of us every day. Something MUST be done. Copper could benefit from any regulations put in place to control energy prices.

It’s certainly a very interesting, complex and political issue that has many consequences. 

 



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