InvestorQ : How is the price of copper determined?
Sneha Balasubramanian made post

How is the price of copper determined?

Answer
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2 years ago


Like in case of most precious metals and industrial metals, the price of copper is also driven largely by global demand and supply factors. Disruptions in supply of copper could be a key reason for the shifts in price of copper. However, currently copper production is spread across over 25 countries and hence the risk of disruptions is quite low from the supply side. Therefore supply shifts tend to have a limited impact on the price of copper. The more important factor is the growth in demand for copper. This is normally concomitant with industrial investments, economic growth, investment in infrastructure etc. Since construction industry is one of the largest consumers of copper, a revival in the construction boom could be value accretive for copper demand and prices. Then how exactly is the domestic price of copper arrived at.

Let us look at the Bloomberg chart. Assume that the current price of copper stands at $6372/MT on the “London Metal Exchange“(LME). To arrive at the Indian price, you directly multiply the LME price with the INR/$ exchange rate. Thus our landed cost of copper will be Rs.407,808 per MT. Since copper in Indian markets is quoted on a per KG basis, this will approximately work out to Rs.407.81/KG, which is approximately the price at which copper is quoting on the Indian markets. The values will change based on the changes in assumptions of market price and exchange rate.