Tuesday, January 10, 2012

Analysis Program

According to Investopedia:

"Doctor Copper" - Market lingo for the base metal that is reputed to have a Ph.D. in economics because of its ability to predict turning points in the global economy. Because of copper's widespread applications in most sectors of the economy - from homes and factories, to electronics and power generation and transmission - demand for copper is often viewed as a reliable leading indicator of economic health. This demand is reflected in the market price of copper. Generally, rising copper prices suggest strong copper demand and hence a growing global economy, while declining copper prices may indicate sluggish demand and an imminent economic slowdown.” 

Over the next couple of weeks, we will address the following two fundamental questions:
  • Have copper prices actually been a good indicator of turning points in the global economy? Do do so we will assess historical time series of world GDP (possibly also US, China and Chile), copper production volume and copper price. We will also look at the question whether copper prices are early, concurrent and lagging indicators and address the question whether the relationship (provided we find one) has changed over time.
  • What developments will challenge or strengthen the predictive power of copper prices? We name just a few which we aim to discuss in much more detail:
    • Substitution of copper usage (we have heard about Dean Lumber and Dr. Aluminium)
    • Monetization and off exchange warehouse storage, i.e. dark inventory (for wealth preservation and finance / securitization purposes)
    • Increasing recycling rates (copper doesn't degrade and the copper reservoir is significant)
    • Peak copper (lower production and lower grades) compensated by increased copper usage
    • New uses of copper (antibacterial, renewable energy)
    • More efficient design specifications lowering copper content

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