Considering that prices of both lumber and copper (and commodities in general), are at the heart of the inflation hysteria that is sweeping through markets, any non-negligible change in their prices will have a direct impact on how mainstream narratives view inflation.

Beginning with copper, which made its latest high a month ago in May, prices are now lower by about 12%.

This really isn’t much considering that copper prices have approximately doubled from their March 2020 lows, and are still trading at higher levels than they were pre-Covid.

This can be observed from the chart above, where the dip in prices over the last month appears to be nothing more than a correction at this point in time.

Furthermore, the fall can, in some part, be attributed to the Chinese government’s robust approach to managing inflation by turning the screws on speculative activity. 

While no one knows if copper’s 12% dip will evolve into a deeper downward move, or peter out before the metal heads higher again; what is clear is that developments on the supply side are key to what happens next. 

As copper is still projected to remain in deficit this year, it stands to reason that producers have yet to fully work their way through Covid related disruptions. If so, copper won’t be the only commodity still struggling with the pandemic’s ongoing impact; container shipping and computer chips are both in the same boat.

Therefore, copper prices do still have room to move lower this year, if (and it is still a big if) the supply situation somehow improves and producers can bring more metal to market. 

What would be of real concern, however, is if copper prices continue moving downward and prices of other commodities follow suit.

If this were to happen, it would signal that global demand is waning. This could be due to a new global demand shock, the end of stockpiling in response to high prices, or some combination of the two.

On top of this, increasing levels of production in individual commodities could lead to prices in some to fall faster or by a larger amount than the rest.

In line with this, it is interesting to note that both copper and US lumber topped out within 2 weeks of each other in May.

This is potentially significant, because unlike say, iron ore, whose price was also affected by the Chinese government’s crackdown on speculators, US lumber prices aren’t heavily influenced by what goes on in China.

Whether or not this is a coincidence will be revealed in the coming weeks by how prices of copper and other industrial commodities, especially the more global ones, behave.