Copper prices have fallen by a little over 12.1 percent (in dollar terms) since the beginning of this year. Interestingly, a substantial portion of this fall has come since the beginning of this month. Analysts often refer to copper as Dr Copper, given that the demand for copper is often a reliable indicator of economic health.
How is that? Copper is widely used across different sectors of the economy. It has uses in sectors as varied as electronics, homes, factories and even power generation and transmission. Given this, demand for copper is often a very good lead indicator of the economic health of the global economy. This demand is reflected in the market price of copper.
Hence, rising copper prices indicate strong demand for copper, which in turn indicates a growing global economy. Vice versa, falling copper prices indicate low demand for the metal and hence, an imminent economic slowdown.
As Albert Edwards of Societe Generale writes in a note dated March 13, 2014, titled We are repeating 2008- just backwards? Ignore copper meltdown at your peril Copper and iron ore prices have slumped almost 10% over the last week. Interpreting this move may prove crucial for global investors who traditionally have looked to Dr Copper specifically, and industrial commodity prices in general, to give an early warning to any changing direction of the global economy.”
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