What is 'Doctor Copper'

The term Doctor Copper is 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.

BREAKING DOWN 'Doctor Copper'

Doctor Copper, who is really a concept rather than a person, is often cited by market and commodity analysts as having a strong ability to assess overall economic well-being through the price of copper because of the metal's wide-ranging application in industrial production and electrical equipment. The percentage of global copper production consumed by each sector is estimated by the Copper Development Association (CDA) to be around 65% electrical and 25% industrial with the last 10% used in transportation and other areas.

This makes copper prices a good leading indicator of the economic cycle. For example, if orders for copper are being canceled or delayed, the price will drop. This can be a leading indicator that economic recession is at hand. Conversely, if orders for copper are rising, the price will go up. This can be a leading indicator that industrial jobs are increasing and the economy remains healthy.

A study by the Dutch bank ABN AMRO published in 2014 examined the correlation between copper prices and a number of measures of global economic activity. The statistical analysis shows a strong correlation between copper prices and world trade, regional GDP growth in China, the U.S. and EU, as well as oil and gold prices. 

The Limitations of Doctor Copper

Investors are cautioned that Doctor Copper is not infallible and should not be relied upon as the only indicator of economic health. For example, a temporary shortage of copper may lead to rising prices even as the global economy is slowing down; conversely, a copper glut may cause lower prices despite robust economic growth.

Other factors that can artificially influence the price of copper are things like trade tariffs. In 2018 the United States introduced 25% tariffs on steel imports and 10% tariffs on aluminum imports. While these tariffs have not yet extended to copper, doing so can artificially influence the price of copper. This tax levy would make copper a less reliable indicator of global economic health.

RELATED TERMS
  1. Copper

    Copper is a reddish-gold colored metal that is ductile, malleable ...
  2. Commercial Hedger

    A commercial hedger is a company that hedges the risk of price ...
  3. Supply Shock

    A supply shock is an unexpected event that changes the supply ...
  4. Leading Indicator

    A leading indicator is a measurable economic factor that can ...
  5. Economic Growth Rate

    An economic growth rate is a measure of economic growth, typically ...
  6. Economic Conditions

    Economic conditions are the state of the economy in a country ...
Related Articles
  1. Investing

    Copper Is Still King

    With improvements in global infrastructure increasing at a rapid pace, investors should consider adding some copper exposure to their portfolios.
  2. Investing

    Copper Sees Strongest Rally in 35 Years (FCX, COPX)

    The resurgence in copper, which has seen its strongest weekly rally in over 35 years, has sent the Global X Copper Miners ETF soaring to new 52-week highs.
  3. Trading

    Copper Enters First Bull Market in 4 Years

    Copper has rallied above long-term resistance and entered a bull market that could offer steady profits in related equities.
  4. Investing

    2 Stocks Poised to Plunge as Dollar Rises

    Freeport-McMoRan Inc. and Southern Copper Corp. may fall 15%.
  5. Investing

    Freeport Stock Surges on Higher Copper Prices (FCX)

    Higher copper prices mean higher profits for Freeport, which has seen its shares rise 10% in the past five trading days.
  6. Investing

    E*TRADE: Southern Copper May Be a Buy-the-Dip Contender

    Southern Copper's stock has already been surging this year, but with few bears, E*TRADE said there could be a buying opportunity.
  7. Investing

    Why Freeport Stock Soared 13% Last Week

    The irrational copper price rally industry executives have warned about hasn't stopped investors from buying more copper stocks.
  8. Trading

    Copper Is Breaking Out in Rupees

    With prices moving above resistance to four-year highs, copper is confirming a breakout from its seven-year base.
  9. Trading

    Base Metals are Starting to Shine (DBB, SCCO)

    The chart of the DBB ETF suggests base metals could have a strong finish in 2016.
  10. Investing

    From Gold to Water, Here Are Top Plays on Resources From 8 Experts

    Eight experts see opportunity in a diverse group of commodity plays ranging from gold, copper, cobalt and iron ore to salt mining and water resources.
RELATED FAQS
  1. What factors affect the price of copper?

    Take a in-depth look at the various factors, big and small, that influence the price of copper in international markets and ... Read Answer >>
  2. What are the most common ETFs that track the metals and mining sector?

    Discover investment opportunities with ETFs that invest in physical precious and base metals and miners such as gold, silver, ... Read Answer >>
  3. What are leading, lagging and coincident indicators?

    Leading indicators move ahead of the economic cycle, coincident indicators move with the economy, and lagging indicators ... Read Answer >>
  4. How do tariffs protect domestic industries?

    Understand how tariffs are used by domestic government to protect its domestic industries, how they are levied, and whether ... Read Answer >>
  5. What is the long-term outlook of the metals and mining sector?

    Take a look at the long-term outlook for the metals and mining sector as reported by the industry agency council of the World ... Read Answer >>
  6. Globalization and International Investment

    Learn how globalization impacts international investment and transforms economies around the world. Understand the implications ... Read Answer >>
Trading Center