Looking for a sign in commodities drop

Sarah Gardner Jan 8, 2007

KAI RYSSDAL: Pittsburgh-based Alcoa is traditionally the first of the Dow Industrials to report quarterly profits. And they’ll announce tomorrow after the bell amid a steep sell-off in commodities. Those are the raw materials that go into most industrial goods. Crude oil and copper, in particular, have taken big hits. Some are wondering whether that’s signaling an economic slowdown. Sarah Gardner reports.

SARAH GARDNER: Scott Meyers watched the price of copper skyrocket last year. Now, the New York-based commodities analyst is witnessing a freefall.

SCOTT MEYERS: Where this correction ends, how soon it’s gonna end, what the price is going to be, that’s a guessing game.

Copper prices have tumbled 35 percent from a record high in May. Copper is used in everything from electronic goods to new homes. The slowdown in U.S. housing construction has taken some of the shine off the metal. China’s red-hot economy has been gobbling it up, but investors expect demand there to cool off somewhat this year.

The price of alumina, the raw material for aluminum, has dropped off as well. But analyst Scott Burns in Chicago doesn’t believe the market’s recent commodities sell-off necessarily portends a lousy 2007 for the global economy. Prices were bound to come down, he says, after last year’s spike. And now, consumers can benefit.

SCOTT BURNS: If you’re the average consumer and you’re thinking about putting copper piping into your new construction home, those prices are gonna go down. When you think about cars, they’re now made up of more aluminum than plastic by weight so the cost of the vehicles are going to go down.

Not to mention the cost of driving those vehicles. The price of crude oil has also dropped dramatically. It’s down almost 30 percent since its record high of $78 a barrel last summer. Unseasonably warm weather and expectations of more supply in the future has depressed oil prices.

I’m Sarah Gardner for Marketplace.

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