The price of copper has fallen to a worrying level. Copper prices in London dropped below $9,000 a tonne to their lowest in more than four months on Thursday on a stronger dollar and easing supply disruptions. That’s a negative indicator for the economic recovery.
Copper has fallen 16% from its 2021 high hit in May. Three-month copper on the London Metal Exchange fell to $8,913.30 a tonne, its lowest since April 14, before rebounding to trade at $8,950 a tonne.
The metal has found “key technical support,” writes Tom Essaye, founder of Sevens Report Research. But the dip below the key level means investors are now getting particularly nervous about the economic recovery. And a fall below its current level would add more concern.
Companies buy more copper when they need to build more machinery or materials to manufacture more products, making reduced demand for the metal a negative indicator for economic growth.
The spread of the Covid-19 Delta variant is prompting factories and ports – especially in China – to shut down, cutting off companies’ access to the supplies needed to meet demand. As output in China has weakened, so has the price of metals, writes David Lubin, head of emerging markets economics at Citigroup.
Of course, the supply-chain constraints could ease fairly soon, which would unlock better economic growth. Stocks of finished goods—a measure of how much inventory companies have on hand—have ticked slightly higher in the past few weeks after a downtrend, according to Citi data. “Alleviating supply pressures—of which there is now some encouraging but limited evidence—will be the path to ensuring stronger economic activity,” Lubin writes.