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Lower prices may indicate industry weakness, but the latest checkup with “Dr. Copper” shows the health of the global economy is holding up.
Scott Olson/Getty Images
The price of copper has plunged in recent months in a negative signal for the global economy. Does it mean a global recession? Not necessarily.
Copper has dropped to $3.70 a pound, down 13% from a late January high of $4.27. The major driver of the decline is a slowdown in economies around the globe.
Germany, for example, is in recession as high inflation and interest-rate increases by the European Central Bank have eaten into economic demand. China’s economic growth has slowed down, too. Copper prices are sensitive to drops in demand from lower economic activity. Consider auto makers producing fewer cars that use copper-based metal products, and home builders using less copper piping.
The key is that lower copper prices may indicate industry weakness, and portend lower economic activity and a global recession, at the most extreme possibility. The metal is often dubbed as “Dr. Copper” on Wall Street because demand for it gives a read on the health of the global economy.
And right now, “these [copper futures] prices clearly signal fear,” wrote Colin Fenton, head of commodities research at 22V Research.
That’s the bad news, but there’s a kernel of good news for those who are willing to take an optimistic view of the global economy.
Copper is seeing buying “support” at a key level. Buyers came in at about $3.63 a pound earlier this week, which is no major surprise, as copper has seen consistent support in the low-to-mid $3.60s since the end of 2022. That means the economic outlook may not be grim enough to send the price even lower.
The copper market is monitoring when the sputtering economies of China and Europe will stabilize. Maybe once inflation is properly tackled, demand will improve. Copper is also watching how the U.S. economy is responding to higher interest rates. U.S. consumer spending has grown even in 2023 in the face of higher rates.
That’s why, for copper, “there is key 2023 support between $3.57 and $3.62 [per pound] that will be in focus near term,” wrote Sevens Report’s Tom Essaye. “If it holds, copper could recover and signal a relief rally developing in risk assets more broadly but a violation would be a negative signal for global markets.”
The latest checkup with Dr. Copper shows that the economy is still holding up.
Write to Jacob Sonenshine at [email protected]
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