Do Copper Prices Signal an Impending Recession?
June 23, 2022
For most of us, copper is just the metal that coats pennies, but for some traders, it is an important bellwether for the global economy. In fact, copper’s ability to predict the direction of the global economy is so well-founded that many refer to it as “Dr. Copper.” Unfortunately, the doctor’s prognosis is negative.
Because the metal is used in a wide variety of industrial, electrical, and construction projects, its price is seen as a proxy for economic health. When the economy is expanding and demand is high, prices rise. When the economy slows, so does demand, and prices fall.
Copper futures on the London Metal Exchange have fallen precipitously in recent weeks, down from a high of $10,730 per tonne in March to just $8,575 this week.
That’s a drop of more than 20%, which puts the metal into bear market territory. That is a worrying sign since copper entered a bear market before each of the four previous recessions.
There is some reason to think that Dr. Copper is off the mark this time, however. Russia accounts for 4% of global copper output, according to S&P Global. After Russia’s invasion of Ukraine earlier in the year, the price of copper and most major metals shot up as traders worried that supply could be disrupted. Even prior to the invasion, copper prices had been on the rise because of the metal’s use in electric vehicles, which require ten times as much copper as gas-powered vehicles.
Economists at UBS expect copper prices to continue falling throughout the year and into 2023.