Commodities: Is Dr Copper telling us everything is going to be alright?
Copper has acquired the nicknames “Dr Copper” and “the metal with a PhD in economics” due to its uncanny ability to diagnose the health of the broader economy. This is largely because copper has a host of industrial uses—including for electrical wiring, roofing, plumbing and industrial machinery—and because its supply is relatively stable, which means that prices are closely correlated with demand.
Economists and investors alike thus closely track the price of the commodity to infer how the economy is doing and will have been on edge when copper prices sunk to over two-year lows in late September amid heightened concerns about the Chinese economy, which consumes around one-half of the world’s copper, amid ongoing trade tensions with the United States. Despite bouncing back somewhat following disruptions to supply in Chile and optimism related to the “phase one” trade deal, copper prices traded at USD 5,827 per metric ton on 1 November, which was still down 2.1% on a year-to-date basis and 4.5% from the same day in 2018.
Looking at our projections for next year, Dr Copper indicates that a global recession does not seem to be around the corner. Our Consensus Forecast projects that copper will average USD 6,288 per metric ton in Q4 2020, comfortably above the symbolic USD 6,000 per metric ton mark. At the same time, trading patterns in the Chicago Metal Exchange and London Metal Exchange seem to suggest funds are starting to turn more bullish on copper.
Nevertheless, as highlighted by the chart above, the spread between our panelists’ projections is significant: The minimum forecast for Q4 2020 is USD 5,182 per metric ton, while the maximum forecast is USD 7,000 per metric ton. Furthermore, many analysts argue that copper prices should be trading much higher given the supply and demand outlook.
With regards to supply, uncertainty has spiked due to the tense political situation across much of Latin America, where approximately one-third of output is located. Of particular relevance are the protests which have recently engulfed Chile, the world’s largest copper producer; BHP, for example, announced on 29 October that its Escondida mine, the world’s largest, was operating at a “reduced rate” after its employees joined the anti-government protests. On top of this, supply is below capacity due to long-term under-investment.
Meanwhile, the long-term demand outlook should be bright given we will need a lot of copper if we are to succeed in decarbonizing and transitioning towards a more sustainable world: Electric cars require about three times more copper than traditional cars and the metal is also currently instrumental in producing wind turbines, solar panels and other renewable energy sources.
Given the above and fears of a global recession swirling, economists and investors will continue to keep a close eye on Dr Copper’s diagnosis of the health of the global economy.
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinion of FocusEconomics S.L.U. Views, forecasts or estimates are as of the date of the publication and are subject to change without notice. This report may provide addresses of, or contain hyperlinks to, other internet websites. FocusEconomics S.L.U. takes no responsibility for the contents of third party internet websites.
Date: November 20, 2019
TagsHousing Market Australia Israel Japan USA Trade Emerging Markets G7 election Portugal Tunisia Exports Central America scotiabank Infographic Base Metals Base Metals Commodities Nigeria Asia Asean Palladium India public debt Copper Italy Nordic Economies Venezuela South Africa France UK IMF Africa Brexit Spain Economic Debt Lagarde OPEC interview Eurozone Precious Metals Commodities Commodities Vietnam United Kingdom Canada Germany Inflation Iran Forex Unemployment rate Cryptocurrency CIS Countries Banking Sector Mexico Oil Company News chile Sub-Saharan Africa Latin America Energy Commodities Political Risk China European Union Agricultural Commodities Economic Growth (GDP) Colombia TPS economic growth Greece Turkey United States Bitcoin Healthcare Exchange Rate Consensus Forecast Canadian Economy TPP Resource Curse precious metals Asian Financial Crisis Economists Brazil Ukraine oil prices Argentina Economic Crisis Cannabis MENA Eastern Europe Draghi GDP Budget deficit Gold Costa Rica; GDP; Budget Russia Investment Euro Area Major Economies
After years of chronic downturn, the Venezuelan economy appears set to shrink at a significantly softer rate this y… https://t.co/3rUhH4VTqO
2 days ago
Unemployment in Central America and the Caribbean soared last year as Covid-19 restrictions bit hard and vital tour… https://t.co/sTX41IBUG1
3 days ago
The Colombian peso weakened notably against the U.S. dollar in early July, weighed on by social unrest and ongoing… https://t.co/PnDn2BKr54
4 days ago
Latin America's economy should recover some of last year’s losses in 2021, thanks to the gradual removal of restric… https://t.co/QKvbvvKLsj
5 days ago
Chile’s 2021 GDP growth projection has been raised once again. The upward revision was driven by a robust outturn f… https://t.co/5aKVvcwoSM
6 days ago