Copper Prices at 5-Week Lows. Is this a Bad Sign for the Global Economy?

Aluminum and copper prices are a study in contrast. Aluminum is trading near all-time highs (See Exhibit 1: Aluminum Trading Near All-time High Price) while copper's rally is beginning to fade. Copper is trading at 5-week lows.  

Exhibit 1: Aluminum Trading Near All-time High Price

(Source: Trading Economics)

According to Trading Economics, low inventory levels, the power crisis in Europe, and Ukraine-Russia tensions are all to blame for this incredible rally in aluminum.

Meanwhile, copper prices are at five-week lows due to the strong dollar and increased production. Trading Economics reports that Chilean authorities are projecting that copper production will increase by 4.1% during 2022, returning to pre-pandemic levels. Even at its current price of $4.32/lb, copper is trading at all-time highs (See Exhibit 2: Copper Prices at 5-Week Lows). I am watching copper see if it falls below $4/lb. Falling below that price level may be a bearing sign not only for copper but for the world economy.

Exhibit 2: Copper Prices are at 5-Week Lows

(Source: Trading Economics)

If copper continues to fall, the stock prices for miners, such as Rio Tinto (RIO), might fall with it. The share price of Rio Tinto has tumbled about 9% from its peak of approximately $78.48 achieved in mid-January (See Exhibit 3: Rio Tinto's Share Price Takes a Hit in January).

Exhibit 3: Rio Tinto's Share Price Takes a Hit in January

(Source: Seeking Alpha)

Caterpillar May be Set to Weaken Further.

Caterpillar recently announced that it may face a prolonged sales decline. The stock lost considerable ground on the day of this news. Looking at the Caterpillar's chart, it seems like weakness is set to continue. Caterpillar's sales have declined by 30% in Q2 2020. That's a very substantial decline. Given that the company sells very high-priced capital equipment that last a long time, demand for this equipment may recover slowly.

Exhibit: Caterpillar's Sales Were Down 30% Compared To Q2 2019.

(Source: SeekingAlpha)

I have also done a trend analysis on TradingView that seem to indicate further weakness to come in the stock.  

Exhibit: Caterpillar's chart is reflecting its weak fundamental. 

(Source: Author's chart on TradingView)  

Morningstar's analyst report on July 31 2020 makes a couple of interesting points:

• Many end markets served by the company are not directly affected. 
  
• Given the rally in gold, that may spur more mining.
  

All this may not be enough to save the company from a prolonged downturn.