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Copper goes by the nickname “Dr. Copper,” because the red metal is viewed as a barometer for the global economy. And unfortunately, it hasn’t been saying anything cheery of late.
Copper prices plunged back to US$2.00 a pound this week, the first time they have touched that level since the last gasps of the Great Recession in 2009. Prices are down nearly 60 per cent from their 2011 highs of more than US$4.60, and plenty of experts think they will keep going lower.
“What the market is telling us from the price is that things are quite horrible and about to get worse,” said Bart Melek, head of commodity strategy at TD Securities.
But the market’s outlook is not one Melek necessarily buys himself. He notes that the global economy is obviously in much better shape today than it was in the aftermath of the great recession and he thinks copper is oversold.
Other economists have pointed out that copper has been a solid economic indicator for China in recent years, but not so much for the rest of the world — so perhaps Beijing has much more trouble ahead.
But whether the doctor’s diagnosis is overly pessimistic or not, sentiment on copper itself remains very bearish. And it’s certainly true that China’s economic slowdown remains the key drag. In large part because investors are nervous both about whether China can achieve its 6.5-per-cent growth target over the next five years, and because of rising copper inventories in that country.
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