Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Why Copper Prices Are Defying the Economic Slowdown
Transcript
- Lucas: Copper is sitting at six dollars and seventeen cents a pound as of this evening. That's up half a percent over the past five days. And it's been one of the few bright spots in commodities this summer. Luna: Bright spot is putting it mildly. WTI crude is below sixty-nine dollars. Gold is basically flat. But copper keeps hanging in there above six bucks. Lucas: Right. And the interesting part is this isn't just a short-term blip. Copper has been in a steady uptrend since early 2024, and it accelerated in 2026. Year-to-date, we're up about eighteen percent. Luna: So what's driving it? Because the macro picture doesn't exactly scream 'risk on.' The Fed chair just said inflation is still too high, the USMCA isn't being renewed, and oil is getting hammered. Lucas: Exactly—that's the puzzle. Normally, when you see crude falling and equities wobbling, copper sells off too. Industrial metals are cyclical. They tend to price in a global slowdown. But copper is saying something different. Lucas: Let me give you two numbers. First, supply. Chile and Peru together produce about forty percent of the world's copper. And both countries have seen output fall in 2026. Chile's production is down roughly three percent year-over-year, partly because of ore grades declining at major mines like Escondida. Peru has been hit by social protests that disrupted operations at several large pits. Luna: So the supply side is constrained. That's a classic bullish setup. But demand has to be there to support prices too. Lucas: That's where it gets interesting. Demand is coming from two very different places. One is the old economy—China. Even with their property sector in a multiyear slump, Chinese copper imports hit a record in the first half of 2026. A lot of that is going into grid infrastructure and manufacturing. They're building out transmission lines, electric vehicle charging networks, and solar farms. Lucas: The other demand driver is the new economy. Data centers. AI training clusters. Each one of those facilities can use tens of thousands of pounds of copper just for wiring and grounding. And we're building them at a pace we've never seen before. Luna: I've seen estimates that a typical hyperscale data center uses something like ninety thousand pounds of copper. Multiply that by hundreds of new facilities globally and it adds up fast. Lucas: Exactly. And while oil demand faces an uncertain transition—electric vehicles, efficiency gains—copper demand is actually accelerating because of electrification. Every EV has about three times as much copper as a conventional car. Every wind turbine has a ton of copper in its generator and cabling. Luna: It's like the energy transition is a copper-intensive process by definition. You can't decarbonize without copper. Lucas: Right. And that structural story is why a lot of long-term investors are willing to look through the near-term macro weakness. They see copper as a bet on electrification, not just a bet on GDP growth. Luna: But if walking through the economy with us has made something click about how copper fits into the bigger picture, I'll just say that these conversations stay free because listeners like you chip in. If today was actually useful to you, the way these stay ad-free is listener support — buy me a coffee dot com slash fexingo. Lucas: Yeah, it's a simple way to keep the show going without any ads. And we genuinely appreciate it. Lucas: Anyway, back to copper. So we have tight supply and strong demand. But there's a third factor that I think is underappreciated—the financial side. Luna: What do you mean by financial side? Lucas: Copper has become a favorite hedge for macro funds. When investors worry about inflation or currency debasement, they buy copper as a real asset. It's almost like a monetary metal now, similar to gold but with industrial upside. Lucas: And you can see that in the futures market. Open interest in copper futures on the COMEX has been climbing. Net speculative long positions are near multiyear highs. That's not just physical buyers hedging—it's money managers piling in. Luna: But that also makes copper vulnerable to a sharp sell-off if those speculators decide to exit. The same way oil got crushed when the Iran truce news hit. Lucas: Absolutely. The risk is always there. If we get a global recession—say, a hard landing in the US or a deeper property crisis in China—then the demand picture changes fast. And the speculative longs could unwind in a hurry. Luna: So what's your read? Is copper's resilience a genuine signal that the economy is stronger than people think? Or is it a speculative bubble that's about to pop? Lucas: I think it's somewhere in between. The structural demand story is real. The supply constraints are real. But the speed of the rally since early 2024 has been driven partly by financial flows. That doesn't mean it's a bubble, but it does mean volatility is likely. Lucas: For investors, the key is to separate the cyclical from the structural. The cyclical forces—weak global manufacturing, high interest rates—are headwinds. But the structural forces—electrification, data center buildout, underinvestment in new mines—are tailwinds that could last a decade. Luna: So if you're a long-term investor, you might be willing to ride out the dips. Lucas: That's how a lot of big mining companies are thinking. Freeport-McMoRan, for example, has been investing in expansion projects even when copper prices were lower. BHP and Rio Tinto are also betting big on copper. They see the supply-demand gap widening over time. Luna: One thing I want to bring up: the copper to gold ratio. It's often used as a leading indicator for bond yields. Right now, the ratio is around 1.52. Historically, when it's above 1.5, it tends to signal higher growth expectations. But that seems at odds with the rest of the data. Lucas: It's a good point. The copper to gold ratio has been a reliable predictor of the ten-year Treasury yield. And it's suggesting yields should be higher than they are. But yields have been falling because of safe-haven flows from the equity sell-off. Lucas: So either the bond market is right and copper is overpriced, or copper is right and bonds are too pessimistic. That's the tension right now. Luna: Which side do you lean? Lucas: I lean copper. Not because it can't correct—it can. But because the structural drivers are more powerful than the cyclical ones. The world is investing in electrification at a scale we haven't seen since the build-out of the interstate highway system. And that requires copper. Luna: Alright, so maybe copper is telling us something about the future that other markets aren't pricing in yet. Lucas: That's the bet. And it's a bet that a lot of smart money is making. We'll see if it pays off over the second half of 2026.