Copper may not be as flashy as silver, gold, or platinum, but it is a valuable commodity. Much of the global infrastructure relies on this metal. It is used in the construction, telecommunications, and transportation industries as well as many others.
This makes copper prices good indicators of the overall health of the global economy.
Global demand for this metal is increasing but surprisingly, most of it is not from the United States or even Europe. It is from emerging economies like China, where living standards are increasing and new infrastructures are being built. When a middle class rises rapidly within an emerging market like this, demand increases drastically.
Within China, up to 25 percent of the population is categorized as middle class and this figure could double during the next ten years.
When people move to a higher class status, they take steps to better their lives. This includes upgrading their housing, which leads to more residential construction. As a result, more plumbing, electrical wiring, and appliances are needed, which requires more copper. China has committed $585 billion to infrastructure projects in the near future.
During the next 20 years, China may account for more than 28 percent of worldwide infrastructure spending. However, it is not the only emerging economy—India is right on its heels and anticipates more than $500 billion in infrastructure spending by 2015.
On the continent of Asia alone and excluding Japan, infrastructure projects may represent $1.4 trillion in spending during the next few years.
Over the past year, copper prices have tended to fluctuate with the Chinese economy. When China attempted to restrict lending by increasing reserve levels for banks, both the real estate and copper markets suffered. Things have since recovered, though China continues to be a major influence on the price of the metal.
Because copper is so heavily tied to demand, many investors are looking to copper for positive gains while China gains as well. Others, pessimistic about China are as equally pessimistic about the copper price in general.
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