Copper rout sparks fears over health of global economy

The price of copper, the world’s bellwether metal, collapsed yesterday, prompting new concerns over the strength of the global economy as well as wiping billions of pounds off the market capitalisation of UK-listed commodity firms and miners.

The price of the metal, seen as a leading indicator of economic activity around the world because of its intensive use in a host of sectors from manufacturing to construction, slumped 6 per cent on the London Metal Exchange to $5,500 a tonne at one point, the lowest since June 2009.

The oil price also fell again yesterday with Brent crude price dropping 1 per cent to $46.26 a barrel, down almost 60 per cent since last summer. That price collapse has been attributed to a beneficial surge in US shale oil production, rather than a damaging fall in global fuel demand, but the spread of the commodities weakness to metals such as copper suggests the global economy could be stuttering.

“The recent oil price plunge has been mainly put down to a supply-side issue, but general broad-based falls in commodities would indicate that there are demand issues as well,” said Garry White of Charles Stanley. Copper demand from China, the world’s biggest manufacturer, hit a record high last year, but is expected to moderate in 2015 as GDP growth and investment there slows down.

One of the biggest casualties of the copper rout was Glencore, whose shares slumped by 9.3 per cent to the lowest level since it floated in 2011. Anglo American lost 9 per cent while BHP Billiton and Antofagasta both shed more than 4 per cent. The overall FTSE 100 benchmark of London’s leading shares dropped 2.35 per cent, with the mining sub-index dropping 6.2 per cent, the biggest one-day percentage fall in three years.

The price of other metals also dropped yesterday, with lead hitting a 30-month low, while prices for zinc and aluminium fell to nine and eight-month lows respectively.

Julian Jessop of Capital Economics said the copper collapse was an indication of market panic rather than a reflection of a sudden deterioration of the fundamentals of the world economy. Some analysts said heavy selling by Chinese traders ahead of the two-week local New Year holiday next month had played a part.

However, Mr Jessop added: “We would undoubtedly feel more comfortable about the global economic outlook if the price of copper – and indeed oil – started to stabilise soon.”

The World Bank cut its global growth forecast for 2015 from 3.4 per cent to 3 per cent on Tuesday night, warning that the world was increasingly reliant on the US to drive expansion. “The global economy is running on a single engine, the American one,” said the World Bank’s chief economist, Kaushik Basu. “This does not make for a rosy outlook for the world.”

Retail sales statistics from America for December yesterday surprised markets with their weakness and cast doubt on the assumption lower fuel prices would automatically translate into higher consumer spending.

Copper is sometimes referred to as “Doctor Copper – the only metal with a PhD in economics” because of its reputed ability to signal turning points in the global economy.