The research team at french bank Societe Generale released today its latest Commodities Review newsletter for Q1 2012 with the title “Doctor Copper is Dead”, saying that copper prices will, in their view, not be leading the ongoing slowdown of the global economy. Investors who use the copper price as a leading indicator for the current business cycle downturn are likely to be disappointed as copper is likely to lag other leading indicators.
The reason for this is simple: the physical copper market is tight and has tightened further over recent months. The same is true for oil. The physical crude oil market is extremely tight at present, which explains why crude oil prices have been very resilient despite the terrible newsflow coming out of Europe and fears of a global recession.
The physical tightness in some of the key commodity markets means that, in the absence of a global recession, the forthcoming global slowdown is, on balance, unlikely to result in much lower commodity prices in general from current levels (except for brief price dips on risk aversion bursts) as many commodity prices are already discounting weaker economic activity. Their economists are forecasting a moderate eurozone recession, with zero 2012 GDP growth, weak US growth of 1.4% and a bumpy but not hard landing for China, with 2012 growth slowing to 8.1%.
Interesting read…. full report can be downloaded below.