The copper route is deteriorating as the recession fears hammer blows in commodity markets

A route in the copper market was deepened on Friday, when the price of the world’s most important industrial metal fell for the first time since November 2020 to below $ 7,000 per tonne. tons as fears of recession gripped markets.

The benchmark copper contract on the London Metal Exchange fell 1.6 percent lower to $ 6,987 as concerns about the downturn intensified following weak economic data from China. The price later turned to trading at $ 7,165, up 1 percent, after a round of positive U.S. economic data.

The fall set copper on course for the worst weekly loss since the depths of the coronavirus pandemic in March 2020.

“Concerns about declining Western economies and the impact of a slow real estate market as well as repeated Covid-19 lockdowns in China have seen a market concerned about losing Russian metal supply… Change focus,” said Peel Hunt analyst Peter Mallin- Jones.

Copper has fallen sharply since the price hit a record high above $ 10,600 per tonne. tons in March, when the market was shaken by concerns that Russia’s invasion of Ukraine could disrupt already tight supplies.

Now the market’s gaze has turned to fears that aggressive rate hikes by central banks, rising Covid cases in China and the prospect of Russia cutting off European gas will hit demand for copper and other commodities. A stronger dollar has also weighed on copper by making it more expensive for holders of other currencies to buy.

Bar graph of $ 000 per  ton showing copper set for the worst weekly loss since the depth of the pandemic

Earlier this week, Goldman Sachs, which has been one of the most bullish voices on commodities, lowered its three-month copper price forecast to $ 6,700 per share. tonnes, referring to “increasingly pessimistic growth expectations”.

“This recent downturn has been linked to rising headwinds on the European growth path, particularly from the impact of rising regional natural gas prices on activity,” the bank said.

On Friday, Rio Tinto, one of the world’s largest copper producers, warned of a darker outlook for the global economy, citing the “rising risk” that rapid increases will affect US demand and the “significant headwinds” facing China’s recovery from pandemic shutdowns.

Data on Friday showed that the Chinese economy grew only 0.4 percent year-on-year in the three months to the end of June, when Beijing’s zero-Covid strategy hit activity. China is the world’s largest consumer of raw materials and accounts for half of global copper demand.

Fears of a demand-driven recession come as the copper industry prepares for what analysts have called a “last hoorah” in the mining supply, as a series of projects that have been under development for a decade or more hit the market. Bank of America expects a 7.3 percent year-on-year increase in copper supply by 2023 to 26.8 million tons. To put that figure in perspective, growth has averaged only 2.4 percent over the past 10 years.

Copper bulls identify a golden edge on the current sale, suggesting it will make miners reluctant to sanction new projects that will be needed later in the decade as the world shifts to cleaner forms of power.

A study published by S&P Global this week concluded that demand for copper will double over the next decade, from 25 million. tonnes today to 50 million. tonnes in 2035, due to its use in electric vehicles, charging infrastructure, solar panels, wind turbines and batteries.

“Copper should be a major benefit of the accelerating decarbonisation agenda, and current price volatility could further delay necessary investment in new mines,” Mallin-Jones said.

Leave a Comment