Copper, which has historically been considered a leading sign of economic health, has had a difficult year as macroeconomic and geopolitical activity has slowed global demand.
As China recently loosened its long-standing COVID limitations, enthusiasm in the reddish-orange metal has resurfaced, driving prices upward.
What Happened: Despite the fact that the global outlook remains uncertain, analysts predict that copper prices will rise again later in 2023. Prices returned to a six-month high on Tuesday.
At prices of $8,000 per ton, copper is well above its 10-year average of $6,750, according to Bloomberg.
Copper prices have risen even as major world economies have weakened.
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Part of the downward pressure on the metal this year came from continual market consensus for a surplus in the metal market, driven by expectation of stagnant demand amid slowing global economic expansion and an acceleration of mining activity, according to Goldman Sachs analysts.
Copper has also had a rough time this year as a byproduct of tighter monetary policy and the energy crisis stemming from Russia’s war in Ukraine.
Why It Matters: Despite reports that Chinese leaders postponed a crucial economic policy meeting on Tuesday due to rising indications that COVID-19 infections are increasing as a result of efforts to relax protocols, should China continue to reopen its economy, a restocking of the metal is likely to occur, which could cause prices to return to levels seen in March.
Copper stocks such as Freeport-McMoRan Inc FCX, BHP Group Ltd BHP, Southern Copper Corp SCCO could be a solid investment choice as prices of the metal push higher.
How Is Copper A Leading Indicator? Copper has always been essential to societal and economic advancement. In fact, the metal is so important that market traders call it "Doctor Copper."
The metal is extensively use in construction, electrical equipment and transportation. Market and commodity analysts frequently point to copper as being a gauge of overall economic health.
The construction industry consumes around 46% of the world's copper production, followed by the electrical industry at 21%, the transportation industry at 16%, and consumer goods and industrial machinery/equipment at 17%, according to the Copper Development Association.
Because of its widespread use, copper prices are a good leading indicator of the economic cycle.
For instance, the price of copper will decrease if orders are stalled or cancelled, and this may be a warning sign of impending economic recession.
On the other hand, if demand for copper is increasing, the price will increase, and this may be a sign that the economy is still strong and industrial jobs are growing.
Check out Benzinga's precious metals page.
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