Copper is often called “the smart metal” or the “metal with the PhD” because it is supposed to be a barometer on the global economy. Hence the affectionate name traders like to give it of Dr. Copper.
Some also believe copper is more of a “pure” economic play because there are no investor ETFs to attract speculators like there are for gold and silver.
Therefore, in these times of uncertainty, investors like to look to copper prices for clues as to the strength of the global economy.
China’s Copper Demand
China is currently the largest user of copper in the world, accounting for a 1/3rd of the world’s consumption. Copper, therefore, should be among the first to signal changes in the Chinese economy.
Today, Reuters reported that China’s copper imports fell 17.5% in June from May but this was about equal to April’s levels.
In the first half of the year, however, demand seemed to be there as its copper imports climbed 47% from last year to 2.5 million metric tons. Yet just a few weeks ago there were reports from some of the industrial cities (which also included pictures) of excess copper piled 10 feet high in random parking lots as normal storage locations were apparently full.
Analysts expect imports to China to slow further in the second half.
Copper Prices Holding Up
To many, Dr. Copper signaled the 2008/2009 recession by its sharp sell off which began in June 2008. Copper prices also appeared to indicate when the global economy had started to turn around as it started rebounding by February 2009, just ahead of the low in the U.S. stock market in March 2009.
Copper has been in a trading range for 2012, but is well off its 2011 highs.
Still, when you look at copper prices over the last few months, it doesn’t seem to be signaling a recession. There hasn’t been a sharp sell off sending copper prices to new lows.
Dr. Copper appears to be optimistic about the global economy. He’s not panicking like in 2008.
But with China stockpiling copper in random parking lots, has Dr. Copper lost his edge?
Are copper prices still a useful indicator to judge global economic strength? Or is it now too easily manipulated?
