"Broken Dr. Copper?" Rising Copper Prices Signal Shift in Economic Assessment

Job growth in August was led by the leisure and government sectors, which could be a temporary rebound from the sluggish performance in June and July. Lee Dong-geun, CEO of First Prime Research, emphasized the need to examine the detailed contents of employment indicators.

The slowdown in wage growth suggests that the job market is not as strong as the increase in the number of jobs. He mentioned that the sectors driving job growth had performed very poorly in June and July.

Therefore, core CPI and the qualitative aspects of the job market, rather than headline inflation, are expected to serve as key indicators for the Fed's future monetary policy decisions.

CEO Lee Dong-geun explained that this report does not focus solely on $120.

The report also includes content projecting oil prices at $80 if crude oil exports from the Middle East normalize. This illustrates a phase of oil price volatility that considers both the $120 and $80 possibilities.

The Fed is choosing to respond on a situational basis rather than providing forward guidance. This demonstrates the Fed's basic policy of flexibly responding if future indicators turn negative.

CEO Lee Dong-geun stated that the Fed is not issuing forward guidance and will respond accordingly if indicators turn negative.

Accordingly, the Fed is expected to maintain a stance of postponing interest rate decisions until the election.

While headline CPI is highly volatile due to external factors such as crude oil, core CPI, which reflects underlying price pressures, is becoming increasingly important. CEO Lee Dong-geun emphasized that whether core CPI aligns with market expectations of 0.2% is extremely important.

If it exceeds 0.3%, both the market and the Fed could react. Currently, a month-over-month increase of 0.2% is expected, and he added that if this figure is met, the market will react positively.

Copper prices have risen 47% in one year, reaching an all-time high, primarily due to three reasons. First, the possibility of U.S. tariffs on refined copper has created a supply-demand imbalance. CEO Lee Dong-geun explained that this imbalance occurred due to the potential imposition of tariffs on refined copper by the U.S.

Second, supply disruptions have occurred due to mine accidents in major producing countries. Third, the essential demand for copper is rapidly increasing with the expansion of AI data centers.

CEO Lee Dong-geun mentioned that this situation is somewhat burdensome.

The current surge in copper prices has the potential to act as an overall inflationary pressure in the future, requiring caution.

CEO Lee Dong-geun emphasized that current structural changes surrounding the copper market, rather than U.S. tariffs, are the biggest cause of the price increase.

These structural changes increase the likelihood of a long-term upward trend in the copper market.

CEO Lee Dong-geun believes that the existing market formula of 'Dr. Copper' has already been broken.

This suggests that a change is needed in interpreting copper prices as a traditional leading economic indicator.

This shows that large-scale, state and corporate-led real economy investments are accelerating.

CEO Lee Dong-geun mentioned that this demonstrates the extent of the power shortage in the U.S.

Due to limitations in U.S. technology, the priority of power supply for data center expansion is increasing, making the participation of foreign companies even more crucial.

Gas power generation is being used as a primary short-term alternative to quickly meet electricity demand. CEO Lee Dong-geun predicted that gas power generation will first be utilized for immediate needs, and in the long term, energy sources such as nuclear power and wind will be considered.

Long-term energy plans include nuclear and wind power generation, with major companies like GE, Siemens, and Doosan Enerbility actively bidding for gas turbine orders.

CEO Lee Dong-geun stated that these projections are already being released.

This forecast is a 36% upward revision compared to seven months ago, indicating an acceleration of the rapid increase in electricity demand in the AI era.

Domestic companies are expected to benefit from future nuclear power projects. CEO Lee Dong-geun explained that if the plan involves building about two reactors by combining Westinghouse's original technology with South Korea's proprietary APR1400 technology, all South Korean companies would need to participate.

In addition to gas power generation, attention should be paid to energy infrastructure investments such as nuclear power and Alaska LNG, which are expected to have a positive impact on related domestic companies.