The copper market, a key barometer of industrial activity, tumbled to 2-year lows this week, which hints that sluggish U.S. and worldwide economic conditions will continue the rest of the calendar year.
Because of its widespread applications and the ability to gauge new orders, copper is generally said to provide three to six months advance notice about the state of industrial activity in the world’s economies.
Bill O’Neill, director of Futures Research at Merrill Lynch, says the fortunes of the copper market are set to get even worse before they get better, with the first quarter of 2002 eyed as the earliest likely time for a turnaround in momentum.
He noted poor demand out of Asia, and Japan in particular, as well as a slowdown in European demand. He said that amid such conditions, the world’s commodities markets in general would continue to struggle. The combination of a strong dollar and sluggish economic conditions has plagued worldwide demand for commodity goods.
Furthermore, from a technical or chart perspective, the copper market is deemed destined for further weakness, with the 65 and 66 cent levels pinpointed as viable downside targets, analysts said.
Jim Steel, director of research at derivatives broker Refco Inc., agreed that a turnaround in copper prices was still over six months off. However, he said that when life does finally return to the copper market, early signs will be seen first in orders for finished products such as copper wire and rods, then in the cash market, followed by a pick-up in the futures market.
Succeeding higher levels of activity in these areas will be an eventual rise in overall industrial activity, he said.
