Copper value falls as mines dig deeper

 

Photo Illustration
Photo Illustration

Some geographic ranges are naturally blessed with commodities that are heavy contributors to their economic success. California has timber, Nevada has gold, Wisconsin has cheese and Arizona has copper.

Arizona has been a key contributor to the global economy since the ground-breaking of the first Arizona-based copper mine in 1872. It has since been enshrined into the state flag’s copper-colored star, and deemed Arizona worthy of the title of “the copper state”.

Due to recent economic trends and increased demand, the value of copper has been driven to an all-time low, and Arizona mining companies are digging for a solution that could result in a rebound in the value of copper.

 

This chart from NASDAQ.com displays the six year worth of copper
This chart from NASDAQ.com displays the six year worth of copper:

Copper reached its all-time high in value in 2011 at $4.50 a pound. Since that time, is has taken a hit on the global market, according to NASDAQ.com, the value of copper has fallen nearly 41 percent to the current value of only $2.05 per pound.

The problem with the current economic state of the copper industry is not by any means due to a shortage of copper. Actually, more copper is being mined now than ever before. U.S. mine production increased by about 10 percent in 2014 to about 1.37 million tons, owed largely to a 100,000-metric-ton-per-year expansion at the Morenci Mine in Arizona.

Mark Barton, associate director of the Lowell Institute for Mineral Resources at the University of Arizona, credits the fall in the value of copper to an “economic super-cycle.”

“Global consumption hasn’t fallen recently,” explained Barton. “It’s simply that the global industry has added more capacity, and the U.S. producers are at a competitive disadvantage because of the strength of the U.S. dollar compared to the rest of the globe.” For example, in relation to the U.S. dollar, countries like Canada and Australia have an exchange rate of about 70 cents per U.S. dollar. Their local costs (prices associated with mining local copper) are only 70 percent that of U.S. copper mines.

The expenditures involved in acquiring the land and building a mine are borrowed and then owed from banks and large corporations. Meaning it is up to the production of the mine to pay back these loans and then make a profit. Mining the copper only makes up 1/3 to ½ of the total production cost. Since the strength of the U.S. dollar is lower in other parts of the world, local mines need to cover the marginal cost associated with distributing, transforming, and finishing the mineral. When the value of copper reaches as low as it is now, the mines are forced to produce more copper in order to pay for their operation.

Additional factors that have driven down the worth of copper stem from the inability of international trade to keep up with copper demand, including the high prices associated with processing and distributing the copper. According to Charles Seedorff, associate professor and Lowell Chair in Economic Geology at the University of Arizona, this process is so expensive because, “Certain types of copper are often shipped to other countries to undergo smeltering and processing, then shipped to another country for another process and so on.” Seedorff continued, “The boom was because of demand. Companies couldn’t keep up.”

Historically, copper has been used primarily for electricity as well for heat, transportation and construction.  Copper industry has served as a valuable and durable resource for hundreds of years. According to Barton, “80 percent of all copper mined during the 20th century is still in use today.”

Many experts and mining companies are optimistic for a global resurgence because of the mineral’s ability to be adapted to current surging technological methods, such as hybrid vehicle transportation. According to Barton, “The intensity of copper is two to three times more in a hybrid electric car,” therefore making it a more reliable and sustainable source used to reduce emissions from motor vehicles. Electric cars such as the Toyota Prius contain nearly 64 pounds of copper. The copper serves as a low energy transmitter that transmits electric energy more efficiently than alternatives such as aluminum used in non-electric cars, therefor cutting emissions and lowering the dependance on fossil fuels. As a result, the demand for copper will continue to sky-rocket.

Even more importantly, copper and its byproducts are recyclable. Meaning, it can be a sustainable source of energy to power everything from light bulbs to computers to cars. These are the types of advancements that Barton expects will “drive copper consumption into the future.”

Nathan Delfs is a reporter for Arizona Sonora News, a service from the School of Journalism with the University of Arizona. Contact him at delfs@email.arizona.edu.

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