Like Greek legend, the copper market seems too close to the sun during its historic rise to record levels. Now, according to a research firm, prices are falling back to the ground.
In a report released on Tuesday, Julian Kettle, senior vice president and vice chairman of metals and mining at, Wood Mackenzie, warned investors not to chase copper prices because the current rally could seriously damage the long-term growth of the market.
The Kettle warning comes as copper prices have fallen sharply, down nearly 6 per cent from recent record highs, and are testing important support above $4.50 a pound.
The rise in copper prices is driven by a shortage of supply in the market. As countries upgrade their power infrastructure, demand for copper has increased significantly as part of the green energy transformation. At the same time, the supply of mines can not meet this demand.
However, Kettle points out that as prices rise, the risks of substitution and savings between manufacturers are increasing.
"in the last supercycle, the copper industry was unable to meet China's insatiable demand, resulting in a sharp rise in copper prices at first," it said. However, when prices are above $3 per pound, aluminium substitution in the form of conversion, savings and loss of growth results in a 2 per cent drop in copper demand or 400-500 tons per year. "
Kettle added that many forecasters ignored the fact that aluminium could be an effective substitute for copper.
"although the electrical conductivity of aluminum is about 40% lower than that of copper, it does have attractive properties-especially its density, which is only 30% of that of copper. This means that under the same electrical conductivity, the weight of aluminum cable is about 52% of that of copper cable, which has an advantage in operation and installation. "
Although copper is the metal with the best technical characteristics, once economic factors are taken into account, its advantages are far less obvious. In fact, because of its low cost, aluminum has an advantage over copper in any realistic long-term price. "
Mr Kettle added that if the recent short-term forecast for copper prices above $5 a pound was accurate, it could cause long-term damage to the market, especially if aluminium prices did not follow.
Although aluminium prices have risen sharply this year, they are still far from an all-time high. Like copper, aluminum is under selling pressure.
He believes it is best for stakeholders to heed warnings that high copper prices are bad for metals in the long run.
