They call it the bellwether of the global economy, or “Doctor Copper.”
So copper’s recent decline to a 16-month low is an ill wind.
Simply put, demand is dropping and buyers are fearful of a coming recession, both in the USA and in other major economies.
China’s ongoing struggles with covid don’t help either, as lockdowns come and go sporadically in China and elsewhere.
On the other hand, the fall in the copper price might just be the anti-inflationary harbinger that beleaguered politicians like Joe Biden are so desperately looking for.
There doesn’t seem much likelihood that inflation’s going to fall away from its decades-high rates any time soon. But if raw materials prices are dropping, then there might be some wriggle room available for manufacturers to keep a lid on prices.
Some, like Tesla, have already put prices up. But others may be reassured to note that copper isn’t the only metal price that’s falling.
Nickel’s dropped around US$3.00 per pound over the past month, and aluminium’s down around 10%. Zinc, lead, cobalt, and tin are all also down. True, whilst aluminium’s trading at roughly the same level it was at a year ago, most of the other metals are still up on a 12 month basis.
But it seems that fears of recession have put a stop to that upward momentum, just as the US Federal Reserve was hoping. Although the Fed wants to avoid recession, its widely agreed outside the confines of the FOMC conference room that for inflation to be brought under control, a serious reining in of the economy is required.
So, is it an accident that the copper price is at a 16-month low?
Only in the sense that the Fed predictably lost control of inflation after years and years of stimulus. Now, though, it’s coming down hard on its own money supply in a desperate attempt to bring things back into line.
That being said, the bull case for copper – that the electrification of the world continues apace – remains. Electric vehicles will continue to pull in unprecedented amounts of metal, and the gradual modernisation of developing world economies will consume huge amounts in construction and infrastructure.
For now though, we’ve hit a bumpy patch in the road, and it isn’t clear how long it will last for.