Copper has acquired the nicknames “Dr. Copper” due to its uncanny ability to diagnose the health of the broader economy. This is largely because copper has a host of industrial uses—including for electrical wiring, roofing, plumbing and industrial machinery—and because its supply is relatively stable, which means that prices are closely correlated with demand.
Economists as well as investors closely track the price of the commodity to infer how the economy is doing and will have been on edge when copper prices sunk to more than two-year lows in late September amid heightened concerns about the Chinese economy, which consumes around one-half of the world’s copper, amid ongoing trade tensions with the United States.Despite bouncing back somewhat following disruptions in supply in Chile and optimism related to the “phase one” trade deal, copper prices hovered at US$5,827 per metric ton on 1 November, which was still down 2.1% on a year-to-date basis and 4.5% from the same day in 2018.
Looking at our projections for next year, Copper price movement indicates that a global recession does not seem to be around the corner. Analysts have the consensus Forecast that copper price will average US$6,288 per metric ton in 2020, comfortably above the symbolic US$6,000 per metric ton mark. At the same time, trading patterns in the Chicago Metal Exchange and London Metal Exchange seem to suggest funds are starting to turn more bullish on copper.
Nevertheless, the variations in projections is significant: the minimum forecast for 2020 is US$5,182 per metric ton, while the maximum forecast is US$7,000 per metric ton. Furthermore, many analysts argue that copper prices should be trading at significantly higher levels given the supply and demand outlook.
With regards to supply, uncertainty has spiked due to the tense political situation across much of Latin America, where approximately one-third of copper is produced. Of particular relevance are the protests which have recently engulfed Chile, the world’s largest copper producer. On top of that output is below capacity due to long term under investment.
Meanwhile, the long-term demand outlook should be bright given because industries need a lot more copper to keep growth on sustainable upward trajectory. Electric cars require about three times more copper than traditional cars and the metal is also currently instrumental in producing wind turbines, solar panels and other renewable energy sources.
Given in view fears of a global recession swirling, economists and investors will continue to keep a close eye on Dr. Copper’s diagnosis of the health of the global economy.