Don't copper-coat your recession forecast just yet

There’s an old saw on Wall Street that so goes the price of copper, so goes the economy. And it’s true that both of the last two recessions were preceded by price declines in copper and a build-up of copper inventory. Copper prices are down about 6% over the past month and inventories at the London Metal Exchange have jumped recently. With that worrisome trend in view now, some bearish analysts have gotten riled up in predicting an economic downturn.

Those closer to the copper market see things differently. Kevin Norrish and the rest of the crew in commodities research at Barclays Capital say the old view is too U.S.-centric. China is king copper today and its own growing internal supplies have caused inventories to bloat elsewhere, Barclays writes in a report out today.

“The idea that participants in the base metals markets have some sort of unique ability to discern the economic future has always seemed a little far-fetched to us. Like other growth-sensitive markets such as equities, price movements in base metals reflect the collective prejudices and concerns of all the different participants and so are just as likely to be reactive to events or send out false signals as any other market,” the analysts added.

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