Dr. Copper has been called the favorite economist by a number of analysts because of "his" uncanny ability to forecast economic activity. The reason is simple: supply and demand.
Two months ago, I posted an article, What can we glean from Dr. Copper?, which focused on the rebound in price and emerging signs of an economic recovery. Since then, prices have risen another 20%.
Source: Metalprices.com
What’s so special about copper?
Copper is a key industrial metal that sees increased usage during expansions and falling demand during a contraction. Simply put, prices go up and down depending on demand.
After peaking at $4 per pound one year ago, the price collapsed after the credit crisis last September, foreshadowing the worst global recession in 60 years.
But the price has perked back up since January, signaling that the global economy appears to be on the mend. Investor/speculative interest may be playing a partial role in the rally but as the chart below suggests, demand appears to be picking up as stockpiles decline.
Source: Metalprices.com
Much of this demand appears to be coming from China as fixed investment spending is up 30% from a year ago. Copper is likely getting support from the government's stimulus plan as imports this year or at record levels, according to Bloomberg News.
Headwinds remain but with the price of copper in an uptrend, it appears that the global economy is set to improve.
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