Is the Red Metal Anticipating a Recession?

Copper Analysis and Chart

Article written by IG Technical Analyst Vincent Boy

While global markets continue to anticipate a “soft landing” and remain at their highest levels, the price of copper, considered a relevant indicator of the health of the global economy, is correcting sharply and is at its lowest level since November.

The red metal is used in many industries, such as real estate, telecoms, and even increasingly in activities related to the energy transition. In fact, apart from wind turbines, which require a lot of copper, it takes 4 to 8 times more copper to build an electric car than for a combustion car.

This suggests a bright future for copper over the next few decades, as demand is expected to soar. Moreover, the significant deficit between supply and demand, which was already observed before 2020 and which has increased sharply following the drop in investment during the Covid years in particular, should be very positive for the price in the long term.

However, it has fallen by more than 15% since its high point at the beginning of 2023, after having rebounded during the last quarter of last year against the backdrop of the reopening of the Chinese economy. China accounts for more than 50% of global copper demand.

Thus, although the long-term outlook is very positive, the risks of a slowing global economy, or even a recession and a much softer-than-expected economic recovery in China, should keep the copper price under pressure, but offer an interesting buying opportunity for a longer-term horizon.

Copper Daily Price Chart

The price of copper is correcting by more than 15% since the beginning of the year and after having reached an important objective on the lows observed since January 4 and having held on the 2020/2022 oblique support, it is accelerating downwards.

The breach of the oblique confirms the bearish outlook on the price of the red metal and it should reach its next objective, located on the support range, which initiated a rebound at the end of last year and is located at $3.25/$3.30. The latter had also served as resistance on numerous occasions in 2017.

Below the latter, we expect a quick return to the $3 mark. A worsening of the overall economic situation should support this outlook.