Could Copper’s Collapse Clobber General Electric?

Yes, according to the folks at Morgan Stanley, who think the falling price of copper could hit General Electric (GE), and 3M (MMM), too.

Bloomberg News

As we all know by now, copper has fallen recently on concerns about China’s economic strength–its dropped 7% in March through Friday’s close and is down 12% this year. On first glance, that would appear to be good news for General Electric, 3M and Lennox International, which purchase a lot of copper, so would benefit from lower prices.

There’s only one problem: “[Stock] prices tend to rise and fall in line with changes in commodity prices,” say Morgan Stanley’s Nigel Coe and team. They explain why:

This reality is largely driven by the notion that material pricing tends to rise when demand is high and vice versa. In other words, ignore the potential benefit of lower input cost prices for now – sharp recent falls in commodity prices are a warnings sign for a sector that continues to trade near its cycle highs.

The good news for General Electric is that it’s already been clobbered this year–it’s down 9.5%%–and its stock price has been less correlated to commodities because of General Electric Finance. 3M has fallen 5.7% in 2014.

Shares of General Electric have gained 1.1% to $25.39 today at 1:32 p.m., while 3M has risen 1.8% to $132.20.