Ominous omen for the global economy? Copper futures hit their biggest premium in nearly 30 years!

The copper market has seen an anomaly not seen in nearly 30 years, in what some see as another sign that the global economy may be in trouble.

The continued decline in spot copper prices has widened the spread between it and copper futures for delivery on the London Metal Exchange in three months to the widest level since 1994, sending the copper futures curve into an extreme premium.Futures premium is a term used by commodity futures traders to describe the futures price of a particular commodity being higher than the spot price.

Prices have been falling over the past few months as copper inventories pile up in the LME's warehouses around the world, and analysts say much of the drop in demand is due to economic weakness in Asia, with ripple effects that could extend as far as Europe, the US and beyond.

LME copper inventories stood at 163,900 tonnes as of September 22, according to the latest data from the LME. The figure is up 50 per cent since the start of September and 50 per cent in August. The figures show copper inventories have been rising since mid-July.

commodityIndustrial foreign exchangeAnalysts said the signal from the build-up was clear. "This highlights weak demand", Ewa Manthey, commodities strategist at ING in London, said in a note to clients. But inventories remain low by historical standards.

Dave Rosenberg, a former Merrill Lynch economist who now heads Rosenberg Research, said the plunge in copper prices could be a reaction to a slump in global trade.

The latest World Trade Monitor data released by the Netherlands Bureau of Economic Policy Analysis shows that,Global trade fell 3.2% year-on-year in August, the largest decrease since August 2020Usually, a decline in trade activity is a sign of a decline in broader economic activity

Copper, which has enjoyed the title of "Dr. Copper" for years because of its ability to sniff out global economic trends before official data are reflected, is one of the most commonly used industrial metals in industrial and medical products, household electrical wiring, roofing, plumbing and more.

But recently some analysts have questioned copper's ability to predict the economic outlook. Bank of America's commodities research team, led by Michael Widmer and Francisco Blanch, said in a research note last month thatThe sensitivity of copper to GDP growth has weakened。

Copper futures for December delivery on the New York Mercantile Exchange fell 0.7 per cent to $3.65 a pound on Tuesday, hovering near their lowest level since late May, according to FACTSET data.