When the economy slows, copper prices normally tumble. That isn't happening so far, which could be good news for investors digging for bargains in beaten-down mining stocks.
The price of the industrial metal, used in everything from construction to electronics, is holding up well despite the slowing economy. Copper futures on the Comex division of the New York Mercantile Exchange - though off their 2006 peak - have advanced 35.3 percent from a year ago.
Just this year, copper is up 7.6 percent, to $3.2605 a pound. The Dow Jones Industrial Average, meanwhile, is virtually unchanged from a year ago and fell 4.6 percent in January.
Why are copper prices behaving differently? China has gobbled up more of the metal even as demand has waned in the U.S.
In the first 10 months of 2007, global copper consumption rose 7.2 percent, despite a 3 percent drop in consumption across North and South America, according to the International Copper Study Group. Today, the U.S. consumes just 12.4 percent of global production, down from 21.5 percent in 2000, the group says. China, by comparison, consumes 22.7 percent of global production, up from 12.8 percent eight years ago.
Although prices of copper-mining companies have taken a beating as recession looms, many traders say the metal's bull run isn't over. Inventories are near record lows. Although consumption rose 7.2 percent between January and October of 2007, mine production grew just 4.2 percent, says the copper study group.
Freeport Chief Executive Richard Adkerson told analysts Jan. 23 that a significant amount of its future growth isn't dependent on the U.S. "The world will need copper, as the underdeveloped places in the world, including China and India ... develop," he said.
"Under this environment, the basic strategy is to produce faster and cheaper," says Vivek Tulpule, chief economist for Rio Tinto.
Copper investors may yet be in for a rocky ride. Some analysts see signs supply crunches are easing. Consumers also can switch to cheaper substitutes as prices rise.
But supplies remain tight. Goldman Sachs Group Inc. warned Friday that a severe winter storm in China might disrupt copper production at smelters and refiners there.
Lehman Brothers Holdings Inc. economists recently predicted China's export-led economy would slow in the face of fewer orders from the U.S. If it does, its voracious consumption of copper in everything from power plants to new homes could fall.
Still, many say demand is less fragile than assumed. About 80 percent of the copper used in China goes into power generators, grid networks and construction, says Wang Danping, an analyst with Jinrui Futures, a futures-trading house owned by Jiangxi Copper, China's largest copper producer.
While export-oriented sectors like air conditioning and auto-parts manufacturers are likely to need less copper if U.S. companies cut back on imports, she says spending on infrastructure won't drop as fast. Big copper users in China have even bought mining companies to gain access to supply.