Copper took turn for the worst on Tuesday night, falling more than 6% to below $US2.50 per pound in New York, a fresh four-year low.
In a note to clients on Wednesday, David Cui at Bank of America Merrill Lynch said this not sending a good signal to the white hot Shanghai stock market, which was the world’s best performing stock market in 2014.
Cui wrote that given the widespread use of copper in the Chinese economy, a drop demand — and a resulting drop in price — is often a good indicator of economic health in China, and a likely reason why copper prices and Chinese stocks have correlated well in general.
And with regard to the recent drop in copper prices, Cui writes that, “On balance, we side with Dr. Copper.”
“In our view, the significant pressure on [the price of copper] lately indicates either a noticeable slow-down in demand or troubles in the shadow banking sector, or both.”
“Of course,” Cui admits, “Dr. Copper is fallible.”
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