Nasdaq chart shows the price of copper in U.S. dollars since January 2015. Copper prices have fallen for the last few years due to a slowdown in global demand.

Small communities hardest hit by commodity price plunge

“Slowdown may be structural rather than purely cyclical,” says UBC professor.

In the story ‘Huckleberry Mine lays off 20 employees’ published in the Lakes District News’ Dec. 2 issue, 20 workers were laid off through a restructuring of the Huckleberry Mine.

According to Randall Thompson, Chief Operating Officer at Huckleberry Mine, the company has been facing higher operating costs and a drop in copper prices.

Copper prices have been falling for the last few years, trading below the $2 U.S. level on Canadian markets on Nov. 23, 2015, a low not seen since 2009.

Giovanni Gallipoli, Associate Professor at the University of British Columbia, explains that copper prices have been falling due to a general slowdown in aggregate demand around the world, and notably in China.

“Simply put, the world economy is not growing as fast as it was, at least as compared to the period before 2008,” he said. “Prices are set internationally, so changes in the demand of large consumers such as China, the U.S., or Western Europe are immediately reflected in the price paid to producers.”

Since copper is widely used in manufacturing, when manufacturing growth slows down or goes negative, metals such as copper are one of the first commodities to suffer. Gallipoli explained that when the price goes low enough, producers try to reduce their production costs and often this is reflected in reductions of the labor force.

“This is unfortunately what is happening in many places in which copper is produced, not only in Canada but also in South America,” he explained. “The bad news is that small communities in Canada are suffering disproportionately from this commodity price plunge because they rely more heavily on extraction and processing of natural resources.”

During an open house and presentation at the Burns Lake and District Chamber of Commerce on Nov. 26, 2015, Kyler Hardy, President of Equitas Resources Corp., said the mining industry is “very much a boom and bust cycle industry” – with periods of extreme wealth creation and periods of extreme wealth destruction.

However, Gallipoli says the current slowdown has some features that may be called “structural” rather than purely “cyclical.” He explained that China is transiting from being an emerging economy to the stage of a more mature economy.

“This transition is always painful and is usually accompanied by a sharp drop in growth rates,” said Gallipoli. “The U.S. economy might pick up some of the slack in world growth, but this may take a year or two.”

“While I hope things may stabilize and get better, I am not overly optimistic,” he added.

 

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