Has ‘Dr. Copper’ lost its edge?

When it comes to forecasting future economic health, it seems “Dr. Copper” may be losing its touch.

Copper, used in everything from plumbing and power transmission to pots and pans, may have to give back that “PhD in economics” it earned for being a reliable barometre of growth.

Why so hard on copper’s credentials? It’s because the price of red metal has been falling – down 5 per cent in the past month - while equities have been increasing, sending the Dow Jones Industrial Average into record territory this week.

It’s the exact opposite of what market watchers expect.

“Perhaps Dr. Copper’s field is simply more specialized than before,” Julian Jessop, chief global economist at Capital Economics in London said in a report.

In fact, Jessop says there is "no compelling reason why equity prices and industrial metals should always move in line," especially now that China accounts for at least 40 per cent of global copper consumption, which skews results.

“There are many different factors could drive a wedge between the performances of equities and particular commodities, and some of them might actually be benign,” Jessop says.

"The poor performance of commodity funds in each of the last two years has probably also discouraged investors and hence reduced the correlations between commodities and equities."

Still, “Dr. Copper” shouldn’t start looking for a new profession just yet.

“The persistent weakness of industrial metals is at least consistent with more direct evidence of the fragility and unevenness of the recovery in economic activity,” Jessop says.

While the current price of copper is well below its record of $4.60 per pound reached in early 2011, the current $3.50 level is still considered relatively healthy.

For some context, during the 2008-09 commodities crash, copper fell to around $1.50 per pound. It was resource-hungry countries such as China that helped pull the metal from the brink. To this day, it is the Chinese demand for the metal that miners and investors remained focused on to predict future price moves.