Recession Barometer Copper Drops Below $7,000 per Ton in Ominous Sign for World Economy

A child walks past a truck carrying rocks extracted from a cobalt mine at a copper quarry and cobalt pit in Lubumbashi, Democratic Republic of the Congo, on May 23, 2016. Junior Kannah/AFP via Getty Images

Copper prices fell below $7,000 per ton during July 15 trading at the London Metal Exchange for the first time since November 2020, worsening concerns about a looming global recession.

The price decline was triggered by fresh data from China which showed the country’s economic growth slowed down in the second quarter, registering only a 0.4 percent rise from the previous year. This is the worst gross domestic product performance for the top consumer of metals since 1992.

Falling copper prices are usually seen as a leading indicator of a recession as the metal is used in several critical sectors such as transportation, electrical, and industrial.

Copper has fallen 35 percent from the record high prices seen just four months prior, Bloomberg reported. At the time, supply worries dominated the market amid Russia’s invasion of Ukraine, but now, investors are worried about a potential recession.

Rising interest rates across the world also added to the woes. Copper has fallen 28 percent in 2022 and is heading towards its biggest yearly drop in more than 13 years, Bloomberg reported.

“Copper below $4 per pound, down over 24 percent from the highs (bear market), and down to a 16-month low tells me that ‘recession’ risks have overtaken ‘inflation’ risks,” David Rosenberg, the founder and President of Rosenberg Research & Associates Inc., said in a June 24 tweet.

U.S. copper futures were trading at $3.23 per pound as of 16:10 UTC (12:10 p.m. Eastern time) on July 15.

Goldman Sachs downgraded its copper price and now expects the metal to trade at $6,700 per ton within three months.

Commodities Are Not Faring Well

It’s not just copper prices that are on the decline. Many commodities have suffered massive deductions in value so far in 2022. In a July 14 tweet, Carl Quintanilla from CNBC pointed out that aluminum has gone down 39 percent from its year-to-date highs.

Wheat has fallen 37 percent; lumber 36 percent; cotton 35 percent; natural gas 28 percent; corn 23 percent; crude oil 22 percent; and coffee 20 percent.

“At some point, this will sink in,” Quintanilla said.

In an interview with CNBC on July 5, Joe Terranova, chief market strategist at Virtus Investment Partners, called falling commodity prices a key indicator that the United States might slip into a recession in 2022.

Before every recession in the past 30 years, declining copper prices have been a sign of an impending economic crisis.

The market is not pricing based on inflation but based on an “expected recession,” Terranova warned.

“It’s obvious to us that the recession conversation shouldn’t be about one in 2023. It should be about one in 2022, and in fact, if we’re not technically in one right now.”

Reuters contributed to this report.