Copper fell to the lowest in more than five years on speculation that cheaper energy costs will encourage mining companies to increase production.

Crude oil in New York traded below $45 a barrel today and has plunged about 50 percent in the past year as the U.S. pumped at the fastest rate in more than three decades and OPEC resisted calls to cut production. The decline will help cut costs to produce and transport metals, according to Natixis SA.

“OPEC is sticking to the plan of continued production, which is driving oil lower,” Mike Dragosits, a senior commodity strategist at TD Securities in Toronto, said in a telephone interview. “That’s seemingly driving the cost of production lower for copper, which was already seen as being in surplus.”

Eoin Treacy's view

Energy represents a major factor in the cost of production for just about every commodity from grain to industrial metals. Falling oil and natural gas prices have contributed to lower costs for miners and allowed marginal production to survive at lower prices than many might once have expected. This reduced the price at which a tightening of supply due to lower prices might occur for at least some commodities. 

Contrast copper with tin. Copper prices continue to decline and the pace of the fall picked up today. While a short-term oversold condition is evident, a clear upward dynamic will be required before we can conclude that supply and demand have returned to equilibrium. 

Tin on the other hand found support in late December at the lower side of a three-year range and a sustained move below $19,000 would be required to question medium-term scope for additional higher to lateral ranging.