Dr Copper predicts trouble for China
China's ailing construction sector has caused a slump in the copper price.
If you want to know the outlook for an economy, don't ask an economist the price of copper has a much better track record. Because the metal is used in so many areas of the economy, its price is seen as a good activity bellwether. It is known as Dr Copper' due to its ability to outsmart PhD economists.
On Monday, the price of copper fell to seven-week lows of around $7,700 per tonne as stocks unexpectedly increased. Bears point to a slowing Chinese economy as one reason for this.
During the last decade, China bought as much of the world's copper as it could get its hands on, helping push the price from just under $2,000 per tonne to a peak of around $10,000. Are rising warehouse stocks of the metal and a lower price telling us a nasty recession is around the corner?
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
China's construction and infrastructure boom is certainly coming to an end and recent GDP growth has been weak by Chinese standards, slipping recently below Beijing's precious 8% barrier.
Ultimately, prices for most assets are determined by supply and demand. Increased production by copper miners could be a reason for lower prices. Many mining companies say they foresee a balanced market. But that seems optimistic in the face of waning Chinese demand.
It's worth remembering that this market can move very quickly. Copper prices halved in a matter of months during the financial crisis in 2008 to less than $4,000 per tonne. Dr Copper's latest wobbles should make China bulls especially nervous right now.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
-
Best funds to add to your ISA or SIPP before the Budget
With Labour expected to increase taxes, ISAs and SIPPs could be a great way to protect yourself from any CGT hikes. We look at the best funds to buy now
By Katie Williams Published
-
Starling Bank slapped with £29 million fine over ‘shockingly lax’ financial crime controls
The Financial Conduct Authority has fined Starling Bank £29 million over failings related to financial crime and its financial sanctions screenings
By Kalpana Fitzpatrick Published