Dr. Copper

Copper is a ubiquitous industrial metal used in the production of everything from plumbing to construction materials to electrical wiring. As it pertains to equity markets, copper has been referred to by Wall Street as “Dr. Copper.”  The term implies that copper prices (or price changes) may portend the future of the economy. If demand is high, it suggests industrial production is commensurately high, and copper prices tend to rise. Alternately, the converse may be true.

If prices are falling, there are always alternate explanations to consider (as opposed to decreasing demand and falling industrial output). Prices can be low because of improved production or greater supply. Or they could be lower as industries find alternatives. Or they could be lower if there’s been stockpiling in industry warehouses.

I try to be open minded, but at this point in time, this is a concerning signal in my humble opinion. Note that it is not just copper prices that have fallen of late. Price charts for copper and several other commodities are shown below.

 

Copper price (1 year chart)

copper 1 year chart

Copper price (10 year chart)

copper 10 year chart

Crude Oil (1 year chart)

oil 1 year chart

Tin (1 year chart)

tin 1 year chart

Iron (1 year chart)

iron 1 year chart

 

Another similar/correlated indicator is the Baltic dry index (BDI), which measures the shipping cost to move raw materials by sea. Low shipping costs are another sign of low demand. I take note of this. Baltic Dry Index charts are below:

Baltic dry index (1 year chart)

baltic dry index 1 year

Baltic dry index (5 year chart)
baltic dry index 5 year

Sources: Bloomberg; The Baltic dry index (Wikipedia); all charts from Bloomberg Finance

Print Friendly

1 comment for “Dr. Copper

Leave a Reply

Your email address will not be published. Required fields are marked *