Copper is also known as “Doctor Copper.” Copper has many more uses than other metals. More than half of all steel produced goes into the construction industry. Meanwhile, aluminum is mainly used in the transportation and packaging sectors.
Because of its diverse industrial and commercial applications, analysts see copper prices as a reflection of the global economy’s health. And if this holds true, then the Doctor could well be pointing to a slowdown of epidemic proportion.
Copper prices fall
The previous chart shows the movement in spot copper prices on the LME (London Metals Exchange). As you can see, prices have been on a downtrend for almost a month now. On June 15, copper prices were trading at $5,761 per metric ton on the spot market, having lost ~$600 per ton in a single month.
Copper prices have moved back into contango over the last few trading sessions. Prices are said to be “in contango” when forward prices are higher than the prevailing spot prices. Conversely, prices are said to be in “backwardation” when spot prices are higher than the forward prices.
Copper prices have been in backwardation for the most part since the start of 2014.
Negative for copper producers
Lower copper prices are negative for copper producers including Freeport McMoRan (FCX), BHP Billiton (BHP), and Turquoise Hill Resources (TRQ). These companies’ revenues are tied to LME copper prices.
Copper prices are down 40% from their peak in 2011. A slowdown in the Chinese economy is the fundamental reason for the decline. China (EWH) (EWT) accounts for more than 42% of global copper consumption.
In the next part of our series, we’ll analyze some indicators of Chinese copper demand.