Falling copper prices are often viewed as a leading indicator of an impending economic downturn owing to the metals’ wide variety of use cases in electrical, industrial, and transportation applications. And over the past few months, “Dr. Copper” has been sounding the alarm loud and clear.

Copper futures on the benchmark London Metal Exchange have fallen from highs of $10,730 per tonne in March to just $8,575 as of Thursday’s close, a more than 20% drop, which officially puts the metal into a bear market.  

Using Nasdaq’s measure of copper prices, the metal has fallen over 17% in just two weeks and is now trading at just $3.74 per pound, after hitting a high in March of over $4.94.

When demand for copper is falling, it can signal the economy is contracting, and that has economists worried about an impending recession. After all, copper has entered a bear market before each of the past four recessions.

“Copper below $4 per pound, down over 24% from the highs (bear market), and down to a 16-month low tells me that ‘recession’ risks have overtaken ‘inflation’ risks,” David Rosenberg, founder and president of Rosenberg Research & Associates, said on Friday.

Why were copper prices so high, and where will they go from here?

Copper prices have been sky-high throughout the pandemic for a few key reasons, according to UBS analysts led by Daniel Major. 

First, record fiscal stimulus helped support strong economic demand as COVID-19 lockdowns came to an end, leading to a surge in manufacturing. Second, mining and refining disruptions resulting from local protests and facility closures have hampered supply, leading to historically low inventories in every corner of the market.

Beyond that, copper’s use in electric vehicles (EVs) has been a huge tailwind for the metal in recent years. EVs use up to 10 times as much copper as conventional cars, according to a recent report from the Copper Development Association. Conventional cars typically use anywhere from 18 to 49 pounds of copper, while the average EV uses 183 pounds, and an EV bus can use up to 814 pounds.

“Copper’s exposure to high growth energy transition sectors (EVs & renewables) creates a robust medium-term demand outlook, but its diverse end uses also make copper a barometer of economic activity & industrial production (“Dr Copper”),” the UBS analysts wrote.

But the UBS team believes rising demand from the clean energy transition will not be enough to keep copper prices elevated amid falling economic growth in Europe and the U.S., and a “mixed recovery” from COVID-19 lockdowns in China. And they argue copper will move even lower in the second half of this year and into 2023 as well.

“As a result we expect [copper] demand growth to moderate, but not collapse,” the analysts wrote, adding that they expect copper prices to trade between $2.75 and $3 per pound over the coming year.

If they’re right, based on historical evidence, it could be a bad sign for the economy.