What is Doctor Copper?
The term Doctor Copper is market jargon for this base metal which is renowned for having a “PhD in Economics” due to its ability to predict turning points in the global economy. Due to copper’s widespread applications in most sectors of the economy – from homes and factories to electronics and power generation and transmission – copper demand is often seen as a reliable leading indicator. economic health. This demand is reflected in the market price of copper.
Key points to remember
- Doctor Copper is insider jargon used in commodity markets to explain price trends in copper’s ability to predict the overall health of an economy.
- This is due to the fact that copper is a fundamental raw material used as inputs in many industries and products.
- Generally, rising copper prices suggest strong demand for copper and therefore a growing global economy
- When copper prices fall, it may indicate sluggish demand and an impending economic downturn.
Understanding Doctor Copper
Doctor Copper, who is actually a concept rather than a person, is often cited by market and commodity analysts as having a strong ability to gauge overall economic well-being through the price of copper due to the wide application of metal in construction, electrical equipment and transportation. The percentage of global copper production consumed by each sector is estimated by the Copper Development Association (CDA) at around 46% for building construction, 21% for electricity and around 16% for transportation, with the remaining 17% being used in consumer products and industrial machinery. /equipment.
This makes copper prices a good leading indicator of the business cycle. For example, if copper orders are canceled or delayed, the price will drop. This may be a leading indicator that an economic recession is at hand. Conversely, if copper orders increase, the price will increase. This can be a leading indicator that industrial jobs are increasing and the economy remains healthy.
Research by the CME Group published in 2022 examined the correlation between copper prices and a number of measures of global economic activity. Statistical analysis shows a strong correlation between copper prices and the global economy (especially China) as well as oil and gold/silver prices.
The Limits of Doctor Copper
Investors are cautioned that Doctor Copper is not infallible and should not be relied upon as the sole indicator of economic health. For example, a temporary shortage of copper can cause prices to rise even as the global economy slows; conversely, a glut of copper can lead to lower prices despite robust economic growth.
Other factors that can artificially influence the price of copper are things like trade prices. In 2018, the United States introduced tariffs of 25% on steel imports and 10% on aluminum imports. Although these tariffs have not yet extended to copper, this may artificially influence the price of copper. This tax levy would make copper a less reliable indicator of global economic health.