Copper is a barometer of the world economy, and tellingly it has fallen to $3.41 per lb. in mid-August from $4.05 in July. “As we see copper prices fall, we consider that there will a global slowdown economically,” says Mike Gehrman, senior commodity specialist for PFG Best. “We have just taken out some important support areas that go all the way back to the first quarter of the year,” and he says copper could decline to $3.20 before recovering to between $3.40 and $3.60. As much as 46% of copper is used in building construction, and with the U.S. housing market projected to continue its decline through 2009, he doesn’t expect a turnaround soon.
The trend for both production and consumption is down, notes Sholom Sanik of Friedberg Mercantile Group Ltd. And according to a study by the International Copper Study Group, the global balance sheet showed a 108,000-ton deficit for the first four months of 2008. “In 2007 total global usage grew by 6.6%, to 18.2 million tons. Through April, however, global usage was down 0.06%,” he writes.
We are seeing a sell-off and consolidation,” says Patrick Donnelly, broker for Peak Trading. “It’s a deflationary period that we are in right now,” and demand is down for gold, silver and oil as well, he says. “There is more room to the downside.”