Copper is an incredibly widely used commodity, playing an important role in everything from electrical goods to construction. As a result, analysts pay careful attention to the price of copper: when it’s rising, this signals an increase in general economic activity as the broad range of applications pushes up demand.
And in the past couple of months, the price of copper has been skyrocketing.
On Friday, December 18th, the price for copper for delivery in three months was $8028 a tonne on the London Metal Exchange. Meanwhile, the price on the Shanghai Futures Exchange was $9095 a tonne – the highest its been for nine years.
Rapid Copper Turnaround
This represents a striking turnaround in the price of copper, which had slumped to below $5000 a tonne back in March as the coronavirus spread through Europe.
But the big question is whether the recovery of copper prices is still a valid bellwether for the global economy, especially in this strangest of times.
And the answer is not as clear-cut as you might think.
The first rally of copper prices came early in the summer – but the climb in copper prices then was likely more due to concerns that COVID-19 would affect copper production in Chile and Peru, the two largest producers of the metal.
More worrying still are signs that the current rally has been due to speculation buying rather than purchases from industrial buyers.
Other issues inflating the price of the commodity include the current weakness of the US dollar – copper is always priced in dollars, so any fall in the strength of the US currency automatically affects the cost of copper bought in other currencies – and low warehouse supplies due to recent large projects in China.
In the longer term, the demand for copper in the production of electric cars could also significantly skew the value of copper upwards.
But whether or not the relationship between copper prices and economic health has been broken, one thing seems sure: copper prices aren’t dropping anytime soon.
Trade Metals at Plus500: