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Copper goes by the nickname “Dr. Copper” because history shows the red metal is a leading indicator of the global economy’s health. Unfortunately, it hasn’t been telling us anything good lately.
The red metal has recently been in a swan dive, dropping close to 10% since mid-February and falling steeply in the past couple of trading days. The key futures contract on Monday briefly sunk below US$3 a pound, its lowest level in eight months.
As is usual with commodities, China appears to be the culprit. Investors were spooked by recent Chinese trade data that showed a stunning 18.1% year-over-year drop in exports in February. That left a trade deficit of US$23-billion.
“It was a big number that probably surprised people,” said Kerry Smith, an analyst at Haywood Securities.
There was already a lot of concern in the market about the Chinese economy, particularly after its first-ever corporate bond default last week. But copper, much like China, has shown remarkable resilience in recent years.
Copper since 2010 has periodically dipped below the US$3 level, but has rapidly bounced back every time. The metal seemed to be finding a comfort zone around US$3.20 or US$3.30 a pound before the recent drop, and that is where many commodity strategists think it belongs.
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