Ever heard of Dr. Copper? This isn’t a surgeon or a professor. In fact, Dr. Copper isn’t even a person. Copper, the commodity, has been so helpful in predicting economic cycles that it’s been given a “PhD in Economics”.
The very first metal discovered, copper is one of the most used commodities across the world. Whereas metals like lithium and cobalt find their use in specific industries, copper is demanded in almost every sector.
According to research by the Copper Development Association (CDA), 46% of global copper production is used in building construction, 21% in electricals, 16% in transportation, and the remaining 17% in industrial and consumer products. One tonne of the red metal brings functionality to 40 cars, power to 100,000 phones, electricity to 30 homes and turns on 400 computers.
Due to this widespread use, the price of copper is commonly used as an indicator for economic activity. An in-depth analysis by the CME Group ($CME) found strong correlation between the movement of copper prices and that of the global economy. When copper prices fall, it’s assumed that an economic recession is coming, since copper demand is expected to only decrease when major manufacturing and production slow. Similarly, increases in copper prices point to a healthy global economy and job market.
Another study found the movement of copper futures predated the movement of the industrial commodity price index, while that of copper spot prices predated that of crude oil and inflation. Copper is even found to be three times better at hedging for inflation than gold is. Analysts have taken notice and now regularly use copper prices to forecast several elements of the economy. And that’s how Dr. Copper earned its PhD.
Aside from its “forecasting powers”, copper has also been found to lead the S&P 500. Researchers used technical analysis on copper prices and identified chart patterns that either pointed to a subsequent rise or fall in the S&P 500. Amazingly, the S&P 500 did move in accordance with the prediction.
So what’s next for the red metal?
While copper has been lagging in the past year, it’s expected to slowly inch up to US$11,500 in 2031. The main driver, of course, is the transition of global markets to renewable energy and electric vehicles. At least that’s what this doctor prescribes.