Copper: Why Price Of The Metal Could Affect You

As part of Sky News' focus on commodities, today we are looking at copper. Here is what you need to know.

:: Why Should I Care About Copper?

It (Other OTC: ITGL - news) is used in everything from cars to electricity transmission, so its price performance is considered an accurate reflection of the health of the global economy.

:: Hasn't Copper's Price Been Falling Like Everything Else?

Yes. Lower demand from China, the world's biggest consumer of base metals, has meant prices have fallen to their lowest levels since 2009.

High-grade copper has fallen nearly 20% so far this year, helping to push Bloomberg's Commodity Index to its lowest in 16 years.

Although the metal is now trading at around $2.30 per pound - down from its record $4.60 in early 2011, the price hasn't proved as volatile as the other commodities.

:: Is This Sell-Off All Down To China?

Not entirely, as with most commodities copper's price is denominated in US dollars. This means that when the dollar's value rises the price of copper falls.

This inverse relationship exists for two reasons.

Firstly, a strengthening dollar reduces the value of other countries’ currencies. This suppresses the demand for commodities including copper and therefore reduces its price.

Secondly, when the US dollar is strong investors will choose to hold currency rather than commodity assets such as copper.

The trade-weighted US dollar is marking new heights, compounding a slowdown in copper demand and prices.

:: What Next For Copper?

Barclays (LSE: BARC.L - news) ' analysts recently predicted China's copper consumption would increase year-on-year, based on its assumption that its economy will stabilise in the second half of 2015.

This view may have changed given the market turmoil this week, but today's announcement of a 0.25% cut to Chinese interest rates may go some way to buoying sentiment.

:: How Does This Affect Me?

You probably don't own a copper mine in Chile, well not directly at least.

But for those of us who have pensions it is highly likely that fund managers are invested in firms which do.

Take Antofagasta for instance - since the world's largest miner is listed on the FTSE 100 almost every UK pension will have exposure to its fortunes, and Antofagasta (Other OTC: ANFGF - news) owns copper mines.

Antofagasta, which has just reported its first-half results, is confident that copper prices may have reached their low point.

After a troublesome first half which saw copper production sink 13% to around 300,000 tons, the firm is hopeful that steady growth from emerging markets - notably China - will reverse its fortunes.

"We are well positioned for the current low point in the copper price cycle," said Antofagasta boss Diego Hernandez.

Let's hope he is right - your pension may rely on it.