Copper is one of the most useful of all metals. Its most important modern property is that it is highly conductive. It has many other applications and was first used over 7,000 years ago for containers and for weapons. Its use today in electricity transmission, electronics  and consumer goods makes it an excellent early sign  of the outlook for manufacturing growth. Thus the moniker “Doctor Copper”.

The health of  Doctor Copper is an early signal of future global economic growth. Unfortunately, current indications are that the Doctor is unwell. The chart below would suggest that the current downward price move is really more “reversion to the mean”, rather than a catastrophic decline.

$copper

Chart Courtesy Stock Charts

But Chile, which produces about one third of the world’s copper, says otherwise. While prices have been high over the last decade, grades are way down and costs are up.

Juan Carlos Saez, the president of Corminco, Chile’s mining industry group, says a majority of members are unable to make a profit at current prices. The group includes members such as Glencore, Antofagasta, Teck and BHP. The Chilean government has been subsidizing production, but the subsidy will end at the start of 2016.

If copper goes substantially lower, say to USD1.20/lb, it will indicate that the global economy is in serious trouble. The same, as some are predicting,  as if WTI were to fall to USD25/bbl. On the bright side, under such a scenario cash will be king and there will be investment opportunities galore.

 

 

25 November 2015 Commodities