Copper Price and Economy
Copper price & economy
Copper price as an economic indicator
October 2014
There is a strong correlation between copper prices and global economic activity
Cyclical, fundamental and external factors have a major impact on the copper price
To some extent, the price is an indicator of the world economy
Figure 1: Copper demand/supply shares per region
Source: Metal Bulletin
Figure 2: Copper and major end using sectors
Source: Metal Bulletin
Figure 3: Copper price (real vs. nominal)
Source: Thomson Reuters Datastream
The copper price as a yardstick
Copper is a major component of the economy and plays a particularly
important role in emerging countries. At a global level, China is a major
player, accounting for a major share of both the consumption and
production of copper.
Copper is a vital part of our daily lives. Given the wide variety of its
applications, it is often suggested that the trends in the copper market
are a useful leading indicator of the state of the world economy. And in
fact, the metal is sometimes referred to as “Doctor Copper”. This report
sets out the relationship between the copper price and a wide range of
economic variables. Which economic or other indicators have a strong
correlation with copper, and what are the key drivers? Can the copper
price be considered an indicator of the world economy? Our analysis
shows, among other things, that the copper price has a strong
correlation with numerous indicators that are relevant for tracking the
world economy. So there is some truth in the contention that the copper
price can help identify macro-economic trends. When demand for
copper grows, the price will rise. And greater demand for copper
means that industrial activity is rising, and hence that the economy is
expanding. Even so, the correlation remains challenging: the copper
price also reacts strongly to the release of new macro data, as
stakeholders try to estimate future demand for copper, and this
sentiment is reflected in its price. In any case, it is more relevant to
track the long-term price trend (in relation to the economy and the
fundamentals) than the short-term movements.
Which industries are the heaviest users of copper?
Copper is used across a wide range of sectors and industries. This
explains why it is linked – more strongly than other base metals –
directly with economic activity in those sectors and industries as well as
indirectly with the overall economic activity. Within the manufacturing
sectors, copper is widely used in machinery and is also turned into end
products and semi-manufactures (such as roof tiles, door knobs, pipes,
tubes etc.). The electrical engineering and electrical appliances
industry accounts for a huge share of global copper consumption (in
consumer products such as computers and domestic appliances).
Because it acts as an effective conductor of heat and electricity, copper
is also used in the installation sector, the energy sector and the ICT
sector. And as a good conductor of heat, it is widely used in the
transport equipment industry as well. Automobile production springs to
mind here: a passenger car contains about 20-50 kilograms of copper,
depending on the model. Smaller cars contain around one kilometre of
copper wires and cables, while radiators are also fitted with a
substantial amount of copper. The construction sector is another
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