Why Copper Prices Are Collapsing

Economic Growth Falls to 2009 LevelCopper prices are collapsing, a sign that manufacturing activity in the global economy is slowing.

The chart below shows copper prices are down more than five percent so far this year. Notice the steep decline in copper prices starting this January.

Copper is a major commodity used as a material ingredient in a wide variety of manufactured goods. If copper prices are declining, which means demand is falling, we get an early indication that manufacturers are producing less because customer demand is soft.

At the same time, in another startling development, the Baltic Dry Index (BDI), the next chart below, has collapsed 50% from the beginning of the year.

Copper - Spot Price (EOD) Chart

Chart courtesy of www.StockCharts.com

The BDI basically tracks shipping prices of raw materials in the global economy. When the BDI declines, it means fewer goods are being shipped in the global economy, a sign that the worldwide economy is slowing.

Baltic Dry Index (EOD) Chart

Chart courtesy of www.StockCharts.com

Last but not least, as we have been hearing in the news, the emerging markets in the global economy are in trouble.

Manufacturers in the global economy, not being able to sell enough to developed countries like the U.S. and Europe, were hoping to sell more of their goods to once “fast”-growing emerging markets. But now, economic growth in these countries is slowing, too.

Russia, one of the major emerging markets in the global economy, reported its 2013 economic growth rate was the lowest since 2009! The Russian Federal Statistics Service said the economy grew by 1.3% in 2013 compared to 3.4% in 2012. (Source: Bloomberg, January 31, 2014.)

Other emerging markets like India and China have posted a dismal economic performance, too.

I wrote in these pages many times last year that the U.S. economy would not escape the slowdown in the global economy—and that’s exactly what we are finding out now.

The U.S. economy is not an isolated island. We are more connected to the global economy than ever. Almost half the S&P 500 companies derive revenue from outside the U.S.; hence, is it really any wonder that our stock market is declining as emerging markets suffer?

I predicted 2014 would be a very difficult year for the economy and the stock market. So far, with the Dow Jones Industrial Average off 5.7% in January, 2014 looks like it could be a total reversal of 2013 for the stock market.