The red metal, popularly known as ‘Dr. Copper’, is often considered a vital indicator of the economy’s health. It tends to move with business cycles. So, when copper prices start to level off or increase, economists start to get excited.
However, copper’s recent surge doesn’t necessarily mean business conditions are improving. This time, its price movements have been caused by other factors, which we’ll explain in a moment.
Take a look at the chart below. It shows spot prices for copper over the past six months. Its price has been increasing through the first quarter of this year, and it has climbed by more than 40% since March this year.
Copper’s recent bout of strength has come from a string of upbeat data from China, which uses much more copper that it mines domestically. The superpower recently reported record copper import levels.
Copper’s five-month high may lead investors to view it as an early indicator of economic recovery. But ‘take caution’, says Melinda Peer of Forbes magazine. "China and its state run corporations are big buyers and they like to hoard for the long-term", she advises. Deutsche Bank analyst Joel Crane agrees. He thinks China has been taking advantage of cheap prices to stock up on the metal.
A weak dollar and China’s re-stocking of copper supplies has helped copper sustain a higher price. But it remains to be seen whether the metal can continue a rally once this demand fades.
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