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Are Dr Copper's days numbered?

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Prices of copper – the industrial metal used to make everything from cars to houses – has long been seen as a temperature gauge for the global economy. Yet as reports of how the bulk of China's copper imports are used as collateral emerge, the 'Dr. Copper' mantle appears to be losing its shine.

The calls come as the red metal slumped to its lowest level in nearly four years in U.S. trading on Tuesday, with May futures off 2.5 percent at $2.9520 a pound and down 8 percent over three sessions.

Meanwhile in Shanghai, copper fell 5.4 percent, its daily limit, on Wednesday, to 43,690 yuan ($7,115) a ton, the lowest level since July 2009.

(Read more: Traders watch to see why copper is getting scorched)

A Reuters report this week that Chinese companies have used something between 60 and 80 percent of the country's copper imports as collateral to finance projects has unsettled markets, triggered a fresh wave of selling.

"This is an amazing estimate; it would change the perception of 'Dr. Copper' as a gauge of the Chinese economy, as it's not being used for industrial production, but rather as a financing tool for whatever reason," said Chris Weston, chief market strategist at IG.

Copper has faced a plethora of headwinds recently. Prices were initially hit by weaker-than-expected Chinese trade data released over the weekend, and were exacerbated by news of the country's first debt default in at least 17 years. Most recently, concerns that the default of copper-backed loans could leave the already well-supplied market awash with the metal has spelled further pain.

Furthermore the recent depreciation in the value of the yuan will also make like difficult for those companies holding copper imports as collateral, as the value of their holdings declines.

(Read More: Is China's bond default the tip of the iceberg?)

"If 80 percent of copper imports going to China are being used for financing or collateral, then yes, you have to say that would severely influence copper's role as an indicator of global market sentiment, contrary to what is happening in the rest of the world," said David Lennox, resources analyst at Fat Prophets.

"If there are significant defaults in China, the copper will come to the market irrespective of consumption levels. In that situation you couldn't say it was a global barometer," he added.

(Read more: China Feb exports tumble amid global uncertainty)

Mark Keenan, head of commodities research at Societe Generale, said that the way people are viewing copper as a global market indicator has changed.

"Copper retains a positive correlation to most tensions surrounding macro-economic growth, but its ability to forecast declines recently has not been as strong and it tends to be more retrospective," he said.

(Read more: Copper's 'fall out of bed' underscores China woes)

Although China is the largest buyer of copper, Keenan highlighted that global appetite for commodities was the dominant driver, and that improvements in the U.S. and European economies was a good sign for the metal.

Growing car sales worldwide, along with continued urbanization in China will also help keep prices elevated, he said.

"We expect a period of heightened volatility, [with] depressed prices in the short term. [In the] medium to long term prices will rise again," he said.

But Lennox was not convinced; he said a recovery in Europe was likely to be a "long, slow grind," thus any increased European demand for copper was likely to be matched by supply.

"We'd have to see Europe really catch on to see copper prices higher," he added.

By CNBC's Katie Holliday: Follow her on Twitter @hollidaykatie