If you’re involved at all with metal scrapping, either as a scrapper or a seller, you have noticed lately that copper pricing has been turbulent. Today it’s up, tomorrow it’s down (and mostly it’s down). Some pundits and experts have noted that metal pricing is closely related to the international price of oil. But how?

Both commodities are impacted by global economic growth in general, but there are more specific reasons why falling oil prices means falling copper prices.

1. Oil makes up 7% of the marginal cost of copper production. When oil is cheaper, the marginal cost of copper production falls further. It’s cheaper to produce so it’s worth less at your local scrapyard.

2. All metal production has an energy cost – the cost to run the equipment to refine and extract the metals. That equipment runs off oil. Cheaper oil means it’s cheaper to run the equipment which means the copper that comes out can be sold for less.

3. Metals need to go from point A to point B, which means freight and shipping costs – by boat, by truck, or by rail. All those things become cheaper with cheaper oil, which means it’s cheaper to move copper around and so the copper you’re looking to sell isn’t quite as valuable.

4. Falling producer exchange rates, the rising gold price reducing copper’s composite production costs and broad-based selling across commodity indices are three other ways that plunging oil prices can impact copper prices.

What does the future hold? Probably even lower copper prices. The Saudi Kingdom continues to price oil at low market rates to undermine their marketplace competitor in Russia (a supporter of Iran and Syria) and China continues to experience an economic slowdown as the country aims to transition from an industrial and manufacturing-based economy to a consumer-based one. Weaker Chinese demands for copper means falling copper prices. Chinese GDP growth is expected to drop from 7.4% in 2014 to 6.8% in 2015 and 6.3% in 2016.

Meanwhile the United States continues to increase its oil and gas output through the utilization of new hydraulic fracturing techniques. The new deal with Iran is also expected to increase the quantity of oil flooding the global market.

By contrast with the same period in 2014 when London Metal Exchange copper prices averaged around $7,000 per ton, they’ve precipitously dropped to roughly $5,200 per ton in Q3 2015. These trends are expected to continue into the next few years.

Don’t sit on your copper! If you have a demolition project and you anticipate that much of the value will come out of the scrap copper, get in touch today. Contractors like Quantum Technology rely on scrap value to offset the costs of labor and equipment. You won’t get a better price for your project by waiting.

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