Copper Price and Economy

Figure 4: Base metal price and season patterns
(average m-o-m behaviour since 1958)
Source: Thomson Reuters Datastream
Figure 5: Long term correlations and copper price
Source: ABN AMRO Group Economics
major copper consumer. The metal is used in several ways here:
functionally, on the walls and roofs of building and as water pipes, and
in infrastructure projects (it is indispensable in the railway industry, for
instance) as well as decoratively in the design of buildings. And finally,
copper is also increasingly widely used in the medical sector, because
of its strong anti-bacterial properties. In short, because copper is used
and consumed in many different sectors and industries, it has been
argued that copper is a good tracker of economic activity. This is
certainly true compared to other base metals: the use of aluminium is
highly concentrated in the transport equipment and packaging
industries (48% of total consumption), while nickel is very reliant on the
stainless steel industry (65% of final consumption) and zinc is used
mainly in the construction industry (51%).
The copper price over time
Since 1958, the copper price has experienced some major peaks and
troughs. The highest price in real terms (i.e. adjusted for inflation) was
recorded in 1966 at USD 11,334 per tonne. The price then trended
downward, hitting a low of USD 2,052 in 2002, when it started moving
up again. It fell back briefly after the collapse of Lehman Brothers in
late 2008, but then soared to high levels, peaking at USD 9,284 in
2011. An important reason behind the uptrend in the copper price since
2002 is the very strong demand for copper from China, which needs
the metal to facilitate its industrialisation and urbanisation process. As
demonstrated by figures from 1958, base metal prices are also subject
to seasonal movements. On average, the prices of all base metals
strengthen in the first four months of the year. This is followed by six
months of volatility (from May to October), and then a renewed
strengthening during the last two months of the year. The seasonal
movements in the copper price are an interesting phenomenon but, as
always, past results offer no guarantee for the future.
The copper price is affected by multiple economic and other forces. For
example, between January and August this year the price came under
pressure from many factors that were not directly of a fundamental or
cyclical nature. In early March, the copper price was hit by a sharp
downward correction following the collapse of the Chinese company
Chaori Solar, which failed to meet its corporate bond obligations. In
response to this default, stakeholders began to worry more about
Chinese economic growth and future demand for copper. And around
June, fraudulent practices came to light in the Chinese port of Qingdao,
where the same shipment of copper had been used as collateral in a
number of financing deals. This made stakeholders nervous about the
future liquidity of the market.
Which indicators are related to the copper price?
Figure 5 shows that the copper price has a strong long-term correlation
with movements in the oil and gold price, world trade, Chinese
economic growth, global demand for copper, developments among end
users (such as industrial production and automobile production) and
world steel production. There is also a moderate link between the
copper price and EU and US GDP growth, the Dow Jones index, the
dollar index, Chinese imports and the US economic activity index. By
contrast, we have observed a weak to non-existent long-term
correlation between the copper price and the Chinese, US and EU
economic activity indices, interest rate levels, the CESI Surprise Index
(which reflects the gap between analysts’ forecasts of macro-economic
Note: numbers in red =
negative correlation; numbers
in green = positive correlation
strong relation
moderate relation
weak relation
very weak relation
no relation
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