Given that its uses are almost entirely industrial, copper is one of the most economically sensitive metals. Unlike gold which can fall back on jewelry or central bank demand, or even aluminum which is heavily used in consumer packaging, copper is almost entirely used for wiring and electrical components, plumbing and industrial machinery.

Considering that relative dearth of alternative uses, it is hardly surprising that from last September through July, global copper prices fell by almost 20 percent.

The so-called “red metal” has begun to stage a comeback though, with prices up nearly 10 percent over the past month. Construction activity in the US has continued to post modest growth, up 5 percent last year to an estimated value of $458 billion. Construction starts this year are on track to grow another 6 percent to $483.7 billion, continuing to drive demand for copper wire and pipes.

And after a record-setting 18 months of recession, the euro zone returned to growth in the second quarter as gross domestic product (GDP) rose by 0.3 percent. While fortunes were mixed as the economies in small countries such as Portugal continued to contract, Germany’s economy grew by 0.7 percent largely thanks to improved manufacturing output and France’s GDP was up by 0.5 percent.

The Confederation of Business Industry has also announced that manufacturing activity in the United Kingdom has reached a two-year high.

However, accounting for about 40 percent of global demand, China is the real driver of copper prices and has been the biggest overhang for the better part of a year now, but there are encouraging signs developing.

Factory data out of China has been somewhat weak, but China’s copper demand shot up by more than 20 percent in the second quarter and Chinese imports of the metal were up by 27 percent in July alone. On the Shanghai Futures Exchange, copper contracts are in backwardation as near term supply has tightened.

Chinese copper stocks will likely remain tight as the government continues to invest in the country’s electricity grid and in the wake of its recently announced program to continue expanding its rail network.

About 45 percent of China’s total copper consumption is devoted to its electricity generation and distribution industry. While Chinese electricity consumption has slowed along with the country’s economy, the government has said it will spend $269 billion on building about 200,000 kilometers of new 330-kilovolt and higher transmission lines through 2015.

On top of that, State Grid Corp of China is embarked on an $80 billion spending program of its own to develop 40,000 kilometers of ultra-high voltage power lines across the country.

China also is investing heavily in developing alternative sources of energy such as solar generation, which consumes nearly four-times the amount of copper as traditional energy sources.

And regardless of the fact that China is shifting economic gears, transitioning from an investment-driven economy to a consumption-driven one, electricity demand growth will continue as urbanization and other factors change the face of the country.

Continued demand from China coupled with recovering copper demand in both the US and Europe should ensure that copper continues to gain ground from here.

That’s good news for portfolio holding Freeport McMoRan Copper & Gold (NYSE: FCX), whose shares have been rallying despite a weak second quarter.

The company’s earnings per share (EPS) came in at 22 cents in the second quarter, well short of the consensus estimate of 41 cents. While copper production was essentially flat on a sequential basis, the average sale price of $3.17 per pound was down by nearly 34 percent compared to the first quarter. Production costs also rose from $1.57 in the first quarter to $1.85 in the second, largely due to disruptions at Freeport’s Grasberg mine in Indonesia.

Gold was also a major drag on results, as production was down from 214,000 ounces in the first quarter to 173,000 and the average sale price was down 17.6 percent to $1,322.

The third quarter is shaping up to be more positive, though, as copper prices have rallied nearly 10 percent and gold is up by almost 12 percent, which should help boost realized sale prices. Production at Grasberg has also resumed so, while full-year production at the mine will likely come in about 20 percent lower than expected, it will once again be making a contribution to earnings.

Considering that most of the costs at Grasberg are fixed and continued to be accrued even as the mine was out of commission, resumption of activity there will help bring average production costs back down.

One of the world’s leading producers of both copper and gold, Freeport McMoRan is a buy up to 42, as it remains poised to benefit from demand recovery.