Wealthy Nations Daily Update - Dr Copper

For decades the financial community has often referred to copper as ‘Dr Copper’ because it’s reputed to have a PhD in economics, based on its ability to predict the health of the global economy and its uncanny knack of predicting turning points. With this in mind it is interesting to note copper’s trading range since the mid-2000’s. At the end of 2005 copper was trading at around USD 4,000 a metric ton. Within 2 years this price had doubled, only to fall to below USD 3,000 a metric ton in 2008. From 2008, after the financial crash, copper prices more than tripled in value to over USD 10,000 by March 2011. Today a metric ton of copper will cost you just over USD 5,050.

This downward trend has been in sharp contrast to the strength of global equity markets, which over the last 4 years (if you discount the last 72 hours!) have continued to rise on the belief the global economy is slowly on the mend.

The reason copper is seen as a good gauge on the global economy is because although it’s relatively inexpensive and plentiful it has numerous useful purposes as it is a very effective conductor of both heat and electricity. This makes it essential in almost all walks of our daily lives. From telecommunications and medical technology right up to massive construction projects; copper is among the very few metals the world has in abundance which we would have trouble doing without.

Since 2000, China has consumed on average about 45% of global copper production and this along with other emerging markets have been the main driver for demand over the last 15 years. However, although China still imports vast quantities of the metal other parts of the world have seen a dramatic slowdown in economic activity and hence have reduced demand. Earlier this month a Barclays Investment Bank commodities research analyst reported that "China's copper import data is OK and inventories are low and not building catastrophically, but downstream demand is pretty poor,"

India also provides a very compelling case for copper demand in the future and one only has to look as far as their power needs. According to the International Energy Agency, India's power production needs to rise by 15-20% annually and to meet that, India needs to invest $1.25tn by 2030 into energy infrastructure. From this new infrastructure, India's annual copper demand is expected to more than double.