Australian Investment Blog

"Doctor Copper" remains bearish on the world economy Copper has long been famed for its ability to forecast the turning points in the global economy. Simply because copper is used in most sectors of the economy the demand for copper is often regarded as a reliable leading indicator for the world's economic health. Rising copper prices indicate strong demand for the base metal and hence a growing economy but falling prices implies sluggish demand and a potential economic slowdown ahead / underway Technically we maintain our bearish view on copper, that we have held for over 2 years, targeting the 150 area, or a further 30% fall in prices - not a particularly aggressive prediction considering copper has already more than halved in price (see chart 1). It was interesting that copper did not get too excited when iron ore and oil enjoyed explosive short covering rallies of late. Copper is topical at the moment as last week we saw Rio Tinto (RIO) give the green light to their Oyu Tolgoi copper project, with the commitment to Phase 2 (underground) expansion with a capex investment of US$5.3bn for 1st production in 2020 and full production in 2027 at a run rate of 560ktpa between 2025 & 2030. It’s clear right now the Copper market is oversupplied and will be until at least 2018, which is supportive of our bearish case scenario for the metal over the next 12-18 months HOWEVER, on most assumptions, the market becomes more balanced and prices should track higher up into this projects guided time frame. So, lower prices first, another 30% in our view before a recovery plays out. Copper Monthly Chart