Is Doctor Copper Healing the Economy?

As we saw in the previous part of this series, copper has a much wider end usage than other metals. Analysts also see copper prices as a reflection of the health of the global economy. For that reason, copper has been dubbed Doctor Copper. However, there’s another view that says copper is just like any other industrial commodity. Copper prices reflect what other industrial metals do: demand and supply dynamics.

The above chart shows the recent trend in copper prices. Copper prices fell steeply at the beginning of the year. However, prices have recovered significantly since then. This was partially due to supply disturbances at some key copper mines in Chile. Latin America (ILF) accounts for almost half of global copper reserves. Chile has the highest reserves of copper, followed by Peru.

Copper prices are trading at their highest levels since December 2014. On a year-to-date basis, copper prices have gained ~1%. Aluminum has gained 4% over the same period.

Higher copper prices are positive for copper producers like Thompson Creek Metals (TC) and Newmont Mining (NEM). NEM currently forms 6.08% of the VanEck Vectors Gold Miners ETF (GDX). Barrick Gold (ABX) forms 6.97% of GDX.

Although copper prices are holding steady this year, they’re still down 40% from their peak in 2011. A slowdown in Chinese copper demand is a fundamental reason behind the decline in copper prices. China accounts for more than 42% of global copper consumption. In the next part, we’ll see how copper production is shaping up in China.