SAN FRANCISCO (MarketWatch) -- In all of gold's fancy footwork, copper's been much ignored, but the metal may offer a hint that there's hope for the global economy yet.

Copper futures reached a record intraday level of $4.27 on May 5 on the Comex division of the New York Mercantile Exchange. Then, as the financial crisis deepened and concerns over the global economy worsened, copper prices lost half their value.

Of the base metals, "copper is the interesting one -- it stayed high longer than the other base metals, but seems to have cracked now," said Brent Cook, independent exploration analyst. "Copper has lost its PhD and is now running with the frat boys."

Still, the metal might be a handy tool for forecasters trying to pry open their latest economic predictions.

“ 'Copper has lost its PhD and is now running with the frat boys.' ” — Brent Cook, independent exploration analyst

"Copper is usually a good gauge of economic health because it is broadly used, but more specifically because it is important to construction and equipment manufacturing that tend to precede other areas of economic activity, and that makes copper a leading indicator," said David Coffin, co-editor of HardRockAnalyst.com.

He believes that copper prices are "testing bottoms." Copper futures prices fell as low as $2.06 on Thursday.

Even if copper prices have reached a bottom, that "does not mean a quick recovery to that mystical $4 level right away," said Coffin.

"The red metal took a steep dive after having held up fairly well due to the thin margin in its supply system," he said. "It had been one of the few metals to hold well above its cost of production through most of this debt drama aided, we think, by its relatively limited Chinese output where local and world prices for some other metals have diverged sharply this century."

And "it is still the metal to watch for trend as the world finds out whether it is indeed time to replenish China's stockpiles," Coffin said.

Emerging support

Indeed, there was a time not long ago when metals demand from China took over the headlines. Actually, that factor still holds true and will likely be copper's support as volatile trading in the commodities sector continues, analysts said.

"The present copper price factors in a severe downturn worldwide, stemming from a slowdown in the U.S.," said Lawrence Roulston, editor of Resource Opportunities. "In reality, other parts of the world are still growing strongly and will continue to grow in spite of a slowdown in the U.S. economy."

He points out that emerging economies, as a whole, are seeing growth, and "have a greater intensity of use of metals than the mature economies."

China, the world's most populous nation, is the world largest consumer of metals, and is expected to continue to grow at more than 10%, Roulston said. At the same time, growth there is driven largely by infrastructure development.

Look at it this way: the copper market has seen slowing import demand from China and translating that as a fall in demand, said Martin Hayes, an analyst at BaseMetals.com. But that has been more likely due to "destocking ahead of the summer and because of the Olympic-induced industrial slowdown," he said.

"As such, we feel this may have left the physical market in China short, and may lead to a pickup in imports that might support prices for a while during [the fourth quarter of 2008]," he said.

China could build up strategic reserves of copper, said William Adams, an analyst at BaseMetals.com. "They have massive foreign reserves, they may well want to diversify some of their dollar reserves and they are resource hungry," he said. "They may well decide to buy copper now that it has fallen so much."

Balancing act

Right now, the copper market is "in supply-demand balance, more or less," said Coffin.

Looking ahead, however, some analysts expect to see continued weakness in demand and a surplus in copper supplies along with continued disruptions to mining -- and no one can tell which will be worse off.

"The base metals saw bubble demand that we knew would evaporate as the 'boom' faltered," said Ed Bugos, editor of Gold & Options Trader, published by Agora Financial. "The demand was real enough, but it was fueled by money growth, which was not sustainable, but which fueled expectations that ultimately led to a worldwide overestimating of demand -- not just for copper, but oil ... etc."

"It was irrational exuberance," he said. "Now you're seeing the results."

The slackening of western demand may help ease the strain caused by the mining service sector's inability to "keep up with new demands on it -- and that goes from assay labs and drilling contractors for exploration projects to tires for production companies," said Coffin.

Sean Brodrick, a natural-resources analyst at MoneyandMarkets.com, said the market could even end up with a small copper surplus in the next year and that could weigh on prices in 2009.

Analysts at Natixis Commodities Markets expect to see a market surplus of 100,000 tonnes in 2008 and 200,000 tonnes in 2009, according to a research note released this week.

But "getting the service side of mining up to the new peak demand for it is still years away," said Coffin.

Labor strikes and other supply disruptions have helped copper production fall significantly short of projections for each of the past several years, said Roulston. "The financial crisis has further deferred some expansion and mine development projects, and that will exacerbate the tight supply situation going into the medium and longer terms."

Coffin said "mining had been in a long-term bear market until earlier in this decade," and few people were willing to get the training to do the specialized work of the sector. That, combined with the long time frames needed to bring new deposits into production, is "why we continue to view the mining sector as still being in a long-term bull market," he said.

Investment alternative

So an alternative to trading the metal, especially in the face of near-term volatility, is "to look at the copper companies, both producers and developers," said Roulston.

"The share prices across the board have been beaten down to levels that don't come close to recognizing the cash flow from production and the long-term value of the metal deposits held by those companies," he said.

As for stocks with "pop up" potential, Coffin singled out First Quantum Minerals (FM)(FQM), which has mining operations in Africa, and Canada-based Sherwood Copper (SWC).

Both companies have been producing the red metal for less than $1 per pound and both have had some relief from declines in the oil price and in the currencies -- the Canadian dollar and the Mexican peso, he said.

He also said that mining company Teck Cominco (TCKB) has been "pushed well below its real earnings potential and rounds out the larger players we deal with." Coffin owns shares in Sherwood and Teck and said he may buy back some shares of First Quantum.

"These are fundamentally sound companies that will recover along with the perceptions about the markets for their products, since they were simply oversold during a panic," he said.