Dr. Copper Points to Stronger Growth Than Oil’s Plunge Suggests

By Simon Kennedy

Copper, the commodity with an economics degree, suggests the health of the world economy may not be so bad after all.
Sliding oil prices have captured the attention of doomsayers worried that Brent crude’s 29 percent decline from its June peak to a four-year low is a sign of deteriorating international demand. Copper’s recent sell-off is half the 18 percent peak-to-trough decline during slowdowns since 2010.
To Keith Parker, head of asset allocation at Barclays Plc in New York, the 7 percent drop in the price of copper on the London Metal Exchange signals the global economy may hold up and soon accelerate.
The metal has long been taken by Wall Street practitioners to
have a doctorate in economics. That’s because its function as an input in everything from pipes to wiring makes copper well-placed to flag shifts in global production.
Its weakness earlier this year came before the subsequent global deceleration, according to Barclays. The more recent drop suggests to the U.K. bank that the world economy should be able to grow 3.5 percent next year after 3.1 percent this year. That’s stronger than the 2.9 percent for 2015 and 2.4 percent in 2014 projected by the median forecasts of analysts surveyed by Bloomberg News.
From 2007 to 2008 and in early 2011, the ratio of copper’s price to oil’s fell, presaging a drop in equities. When it bounced in early 2009 so did stocks.
There are reasons to think it may not be the barometer it was once: China’s appetite may make the metal more an accurate guage of that country’s economy.
Parker is more upbeat. “Global growth should recover as the ratio of copper to Brent oil has risen notably, which historically has been correlated with a pickup in growth,” he said.