Falling Copper Prices Worsen Recession Fears
Some investors view copper prices as a leading indicator of the world economy. If you're one of them, you have reason to be concerned, according to Julia Horowitz for CNN Business.
Photo Insert: The metal is found in a variety of building elements, including electrical cables and water pipes.
On Thursday, copper prices fell to a 16-month low as traders unloaded the commodity. They've decreased by more than 11% in two weeks.
"Copper prices are just starting to account for the fact that global growth is slowing," said Daniel Ghali, director of commodity strategy at TD Securities.
The metal is found in a variety of building elements, including electrical cables and water pipes. As a result, it's frequently used as a proxy for economic activity, as demand tends to rise as the economy expands and falls when it contracts. Because of its supposed ability to predict the future, traders lovingly refer to it as "Dr. Copper."
After Russia invaded Ukraine earlier this year, the price of copper and other important metals skyrocketed. According to S&P Global, Russia accounts for 4% of global copper output and nearly 7% of global nickel output.
Traders were concerned that supply would run out just as the economic recovery from the pandemic began, so they began hoarding aggressively. Prices are now moving in the opposite direction as recession worries take root.
"Once that stockpiling impulse ended, then global commodity demand started to reconnect with global growth," Ghali explained. The first look at a closely watched economic indicator for June confirmed that economic activity is slowing as rising food and fuel prices pinch.
According to the S&P Global Purchasing Managers' Index, which was released on Thursday, private sector output in the United States slowed "sharply" this month.
"Having enjoyed a mini-boom from consumers returning after the relaxation of pandemic restrictions, many services firms are now seeing households increasingly struggle with the rising cost of living, with producers of non-essential goods seeing a similar drop in orders," said Chris Williamson, chief business economist at S&P Global Market Intelligence.