Mak­ing a house call

Sign of im­proved global eco­nomic health?

Finweek English Edition - - Economic trends & analysis - GARTH THE­UNIS­SEN

Etrad­ing at around $7839/t. Stan­dard Bank Group Eco­nomics says that could be an in­di­ca­tion that global eco­nomic growth could be set for a re­bound, if not this year then quite pos­si­bly by next year. By and large, that the­ory is based on the con­tin­ued ram­pant de­mand for white durable goods in Asia, par­tic­u­larly from the faste­merg­ing con­sumer classes of China and In­dia. Ac­cord­ing to the In­ter­na­tional Cop­per Study Group, 50% of Asian cop­per de­mand goes to the man­u­fac­ture of elec­tri­cal and elec­tronic prod­ucts CONOMISTS LIKE TO JOKE that cop­per is the only metal with a PhD in eco­nomics, thanks to its un­canny abil­ity to fore­cast global eco­nomic growth. Price move­ments in the metal are also a handy proxy for the health of the global econ­omy, hence the name Dr Cop­per.

Th­ese qual­i­ties are largely why the metal had many economists pre­dict­ing a slow­down in the global econ­omy at the be­gin­ning of the year. By Fe­bru­ary the cop­per price had fallen to just US$5225/t from a record high of $8799/t in May 2006, thanks to news of higher global i nve n t o r i e s and ex­pec­ta­tions that 2007 would see a sur­plus of more than 100 000 t of the metal.

How­ever, cop­per is again com­pared with just 25% in the US and 37,5% in Europe.

Stan­dard Bank says that amounts to a struc­tural change in the global cop­per mar­ket, with de­mand from the tele­coms revo­lu­tion be­ing re­placed by de­mand for ap­pli­ances in de­vel­op­ing economies.

Glob­ally, the con­struc­tion in­dus­try is still the metal’s big­gest buyer. Fig­ures from the Lon­don Metal Ex­change show that the build­ing in­dus­try ac­counts for 48% of to­tal cop­per de­mand world­wide. That’s par­tic­u­larly true in the US, where 43% of cop­per goes into build­ing and con­struc­tion.

Glob­ally, the other big con­sumers of cop­per are the en­gi­neer­ing, elec­tri­cal and trans­port in­dus­tries, which com­prise 24%, 17% and 7% of de­mand re­spec­tively.

With such a broad range of uses it’s not hard to see why Stan­dard Bank thinks the re­cent up-tick in the metal’s price could be a sign of im­prov­ing global eco­nomic health.

COP­PER... CLOSELY COR­RE­LATED WITH GLOBAL OUT­PUT

Source: Bloomberg, IMF

COP­PER CON­SUMP­TION BY END-USE SEC­TOR

Source: In­ter­na­tional Cop­per Study Group

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