The recent drop in copper prices has sparked concerns about the state of the global economy. However, it is important to note that this does not necessarily indicate a global recession.
Currently priced at $3.70 a pound, copper has experienced a 13% decrease from its peak of $4.27 in late January. This decline can be attributed to the overall slowdown of economies worldwide.
For instance, Germany is facing a recession due to high inflation and interest-rate hikes by the European Central Bank, which have led to a decrease in economic demand. Similarly, China’s economic growth has also slowed down. As a result, copper prices have been affected by reduced demand resulting from this economic slowdown. This can be seen in the decreased production of copper-based metal products by automakers and lower usage of copper piping by home builders.
The significance of lower copper prices lies in its potential to indicate industry weakness, thereby foreshadowing a decline in economic activity and a possible global recession. In fact, copper is often referred to as “Dr. Copper” on Wall Street because it serves as an indicator of the overall health of the global economy.
Colin Fenton, the head of commodities research at 22V Research, highlights the concern surrounding these copper futures prices, stating that they clearly reflect fear within the market.
While this news may seem discouraging, there is still room for optimism regarding the global economy.
Copper Market Shows Resilience Amid Economic Uncertainty
Despite growing concerns over the global economy, copper has found reliable support at around $3.63 per pound. Since late 2022, the price of copper has consistently been propped up in the low-to-mid $3.60s, indicating that the economic outlook may not be as dire as anticipated.
One of the key factors influencing copper’s performance is the stabilization of sputtering economies in China and Europe. Market observers are closely monitoring these regions, hoping that once inflation is effectively addressed, demand for copper will show signs of improvement. Additionally, the response of the U.S. economy to higher interest rates is another area of interest. Despite the increase in rates, consumer spending in the United States has continued to grow in 2023.
According to Tom Essaye from Sevens Report, there is a critical support level for copper in 2023, ranging from $3.57 to $3.62 per pound. The market will be closely watching this range in the near term. If this support level holds, it could signify a potential rebound for copper and serve as a positive indication for risk assets more broadly. However, a violation of this support level would likely have negative implications for global markets.
The recent assessment of the copper market suggests that the economy is still holding up well despite uncertainties.