Why Brexit Will Not Significantly Impact Copper Prices

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The ‘leave’ outcome of the recently concluded EU referendum in Britain has had a destabilizing effect on global financial markets. However, the referendum itself and a British exit from the EU are unlikely to significantly impact copper prices. The dynamics of the copper market are largely determined by Chinese demand for the commodity, with China accounting for over 40% of the global demand for copper. [1] In comparison, the EU is a much smaller player in the global copper market, accounting for roughly 16% of the global demand for copper, as illustrated by the table shown below. The EU accounts for a similar share of global refined copper production.

Copper Brexit

Furthermore, as per estimates by Goldman Sachs economists, a worsening of the terms of trade between the EU and the UK post Brexit would negatively impact EU GDP by around 0.5%, with GDP growth estimates for the next two years cut to 1.25%. [2] Considering the the relatively muted economic impact of Brexit on countries that account for only around 12% of global refined copper production, the event is unlikely to materially impact the demand and supply dynamics of the copper market. Thus, Brexit is unlikely to significantly impact copper prices.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Freeport-McMoRan
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Notes:
  1. Giant China Copper Hoard Has Miners Grappling With Demand Enigma, Bloomberg []
  2. Brexit Aftermath: Goldman Sachs Predicts U.K. Will Enter A ‘Mild Recession’ In 2017, Forbes []