DR COPPER is a barometer of the health of the global economy, and right now it is perking up.
Copper prices is seen as a good leading indicator of the economic cycle. For example, if orders for copper are being canceled or delayed, the price will drop. This can be a leading indicator that an economic recession is at hand. Conversely, if orders for copper are rising, the price will go up. This can be a leading indicator that industrial jobs are increasing and the economy remains healthy.
A study by the Dutch bank ABN AMRO published in 2014 examined the correlation between copper prices and a number of measures of global economic activity. The statistical analysis shows a strong correlation between copper prices and world trade, regional GDP growth in China, the U.S. and EU, as well as oil and gold prices.
This one month ago....
The price of copper is signalling a possible turnaround in the global economy as it soared to a two-year high on Wednesday, buoyed by robust Chinese demand and a more upbeat outlook for world output.
Known as Doctor Copper for its ability to predict global activity, the metal has been in high demand as economies look to reboot through big infrastructure and housing investment.
The base metal climbed 1.4 per cent to $US6978 a tonne on the London Metal Exchange on Wednesday, breaking through $US7000 a tonne earlier in the session, and hitting its highest level since June 18, 2018.
This today.....
The price of copper has surged to a seven-year high of $US7,300 per tonne ($9,910/t) cash basis as demand for the industrial metal heats up with a recovering global economy and is supported by a weaker US dollar.
The red metal’s price has gained 58 per cent since it dipped to a multi-year low of $US4,620 per tonne in March as COVID-19 engulfed the world.
Optimism around President-elect Joe Biden’s Clean Energy Revolution plan is seen as boosting US demand for copper-related applications in EVs, solar panels and renewable energy.
The Biden plan carries $US1.7 trillion of government spending over a 10-year period and is expected to leverage up to $US5 trillion when private sector spending is included.
A report from investment bank Goldman Sachs said new government policies introduced to deal with the COVID-19 pandemic are driving demand for metals.
“[This] will likely create cyclically stronger, more commodity-intensive economic growth, that should create the elusive cyclical upswing in demand,” said the bank. Weaker US dollar, investment funds are other price drivers
Copper, like other commodities, is traded in US dollars, and with the US currency hitting a 30-month low this week the price of the red metal has risen to offset this decline.
“Given the strong negative correlation the dollar has with metal prices, this has had a positive impact on copper prices and will likely continue to do so,” S&P Global Market Intelligence copper analyst, Thomas Rutland said in a report.
Investment funds are also drawn to copper because of its price gains this year.
This speculative investment interest is reflected in the size of long positions in copper futures which have hit a three-year high.
The copper market’s supply and demand fundamentals are another bullish factor, as the two have moved out of kilter.
The influential International Copper Study Group (ICSG) this week noted copper mine production is forecast to be 700,000 tonnes lower this year at 20.4 million tonnes, or down 1.5 per cent on year, and will rise 4.6 per cent in 2021 to 21.7 million tonnes.
“It is anticipated that 2020 will be the second consecutive year of decline in world copper mine production,” said the ICSG.
The refined copper metal market is headed for a deficit of 50,000 tonnes in 2020, and will likely see a surplus of 70,000 tonnes in 2021, said the ICSG.
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World demand for copper is increasing. Image: International Copper Study Group
