Price of copper suggests world economy on right track – by Brenda Bouw (Globe and Mail – September 6, 2011)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

If copper is worth its mettle in predicting the financial future, it appears the global economy isn’t headed off a cliff after all.

Despite a growing number of indicators that global growth is slowing, the steady price of the red metal, dubbed “Dr. Copper” for its ability to diagnose economic activity, is signalling the economy may not be as sick as it seems.

In fact, copper, a metal used in everything from power and construction to cars and cellphones, looks relatively healthy right now considering the recent commodities sell off.

Copper averaged $4.20 (U.S.) per pound in August, according to Bloomberg, not far from a record $4.60 set six months ago, and dipped only briefly below $4 during the recent market turmoil. On Monday, it closed at $4.06, still considered resilient and at a level that remains highly profitable for most mining companies.

Yet the global economic picture isn’t improving.

World factory output slowed in August amid worries over mounting debt in the United States and Europe, and job creation in the U.S. has come to a standstill. Canada’s economy contracted in the second quarter for the first time since the recession, and even almighty China is gearing down from its rapid growth. New export orders in China, the world’s largest consumer of copper, fell for the first time in two years in August, reflecting a softening of the global economy. To add to the woe, European stock markets were hammered on Monday on renewed fears of a debt crisis and concerns about the global economy.

But as prices for certain industrial metals remain firm, either Dr. Copper is losing its prescriptive power, or the economic doomsday predictions are overblown.

A lot of analysts are siding with copper.

“At the end of the day, it’s signalling that things are going to be pretty good,” said Bart Melek, head of commodity strategy at TD Securities. Around current levels, copper “at $4.20 doesn’t spell lousy economic activity.”

A global shortage of copper, made worse by strikes at some major producing mines around the world, is helping to prop up the current price.

China has also reportedly been buying more of the widely used industrial metal in recent weeks, around the time the price hit an eight-month low $3.83 per pound in early August.

Although China is deliberately cooling its economy to tame inflation, investors believe the country’s double-digit economic growth will continue to drive demand for copper for years to come. Miners are also counting on regular supply disruptions and new project delays to prevent the price from falling long-term, as predicted.

These are some of the key reasons behind the world’s largest gold producer, Barrick Gold Corp., deciding to buy copper producer Equinox Minerals Ltd. for $7.3-billion earlier this year.

For the rest of this article, please go to the Globe and Mail website: