ETF Trends
ETF Trends

Copper, the most important commodity in the world, has earned the title of “Dr. Copper” for predicting economic health. Today, TD Ameritrade ran an article claiming Dr. Copper Is In, questioning whether copper hinted last year at the current slowing global growth. While prior research shows Dr. Copper is not so smart, copper is still important and has some areas of specialties like inflation hedging.

Below is a recent Q&A with TD Ameritrade on Dr. Copper to drill into its role as the most important metal:

Why is copper such an important industrial metal? What are some of its uses world-wide?
Copper is the biggest metal in commodity indices with a greater world production and liquidity than any other metal. It comprises about 10.5% of the Dow Jones Commodity Index (DJCI) and just over 3% of the S&P GSCI. One-third of the DJCI is metals where the individual metals are weighted by average liquidity over 5 years. Inside the DJCI, copper is slightly bigger than gold and more than twice as large as the next biggest industrial metal, aluminum. The S&P GSCI is world production weighted where copper is about 1.5 times bigger than both gold and aluminum.

Copper has desirable characteristics as an industrial metal since it is malleable, a good conductor of heat and electricity, and is resistant to corrosion. This makes copper highly demanded for wiring and plumbing in construction, heating and cooling systems, electronic products and in automobiles. Further, it is an important metal in alloys such as brass, tin and with nickel. It improves malleability and acoustics for musical instruments plus does not corrode so is beneficial for shipbuilding.

Why does copper have a nickname: “Dr. Copper?” What is behind the idea that copper is an important predictive indicator for global economic activity?
Copper is reputed to have earned a Ph.D. in economics because of its ability to predict turning points in the global economy. This is since copper is so broadly used across industries from building construction, machinery, power generation and transmission, electronic product manufacturing and in transportation vehicles. The thought is as the demand for copper rises, its price likely increases and suggests a growing global economy. Conversely, declining copper prices may indicate sluggish demand and an imminent economic slowdown.

Who are the world’s top copper consumers?
China has the highest demand for refined copper that is about double Europe’s and roughly 4 times more than the US. The total global refined copper demand in 2014 was just over 20,000 MT with about half coming from China.
Source: http://www.businessinsider.com/copper-demand-by-region-2015-1

Who produces copper?
It’s estimated that Chile produced about 5.80 million tonnes or roughly 1/3 of the world’s copper in 2014. China, Peru, US, Congo and Australia are other big copper producers with 1.62, 1.40, 1.37, 1.10 and 1.00 million tonnes estimated in 2014.
Source: http://minerals.usgs.gov/minerals/pubs/mcs/2015/mcs2015.pdf

Copper prices have fallen significantly recently —what has been pressuring the copper market?
Many influences have been pressuring copper on the downside recently. There is uncertainty over China’s demand even though the numbers showed a 7% growth versus a 6.9% consensus. The fall in the Chinese stock market may also potentially hinder growth. This combined with the Greek crisis and increasing U.S. CPI (Consumer Price Index) has added strength to the U.S. dollar that is another headwind for copper, making it more expensive for buyers holding other currencies.

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