Copper prices deteriorate as recession worries affect commodity markets

The copper market plunged on Friday, with the world’s most important industrial metal sliding below $7,000 a tonne for the first time since November 2020 as recession fears engulfed markets.

The London Metal Exchange’s benchmark contract fell 1.6 percent to $6,987, as recession fears increased following weak economic data from China. Prices then recovered to trade at $7,165, up 1%, following a burst of upbeat US economic data.

This drop put copper on the list of worst weekly losses since the depths of the coronavirus pandemic in March 2020.

“Concerns about the slowdown in Western economies and the impact of a sluggish real estate market as well as the ongoing Covid-19 lockdown in China have made the market nervous about the metal supply. of Russia is lost. . . change focus,” said Peel Hunt analyst Peter Mallin-Jones.

Copper has fallen sharply since its price hit a record high above $10,600 a tonne in March, when markets were roiled by fears that Russia’s invasion of Ukraine could disrupt already tight supplies. .

Now, the market has turned to concerns that aggressive central bank rate hikes, the rise of the Covid-19 outbreak in China and the prospect of Russia cutting off European gas will affect demand for copper and other currencies. other items. A stronger dollar has also weighed on copper by making it more expensive for holders of other currencies to buy.

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Earlier this week, Goldman Sachs, one of the most vocal commodity optimists, cut its three-month copper price forecast to $6,700 a tonne, citing “increasingly pessimistic growth expectations.” .

“This latest drop is associated with increased headwinds to Europe’s growth path, particularly given the impact of regional natural gas prices on activity,” the bank said. the bank said.

On Friday, Rio Tinto, one of the world’s largest copper producers, warned of a bleak global economic outlook, citing “growing risks” that rapid growth would dampen US demand and “significant difficulties” facing China’s recovery from pandemic shutdowns.

Friday’s data shows China’s economy expanding only 0.4% per year in the three months to the end of June, when Beijing’s zero-Covid strategy kicks in. China is the world’s largest consumer of the commodity, accounting for half of global copper demand.

Fears of a recession due to falling demand emerge as the copper industry faces what analysts call a “late stage” in mine supply as several projects have been developed for a period of time. decades or more on the market. Bank of America forecasts copper supply will grow 7.3% year-on-year in 2023 to 26.8 million tonnes. To put that number out, growth has averaged only 2.4% over the past 10 years.

Copper bulls identify a silver lining to the current sell-off, suggesting that it will make miners reluctant to sanction new projects that will be needed later this decade as the world transition to cleaner forms of power.

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

“Copper will be a big beneficiary of the accelerated decarbonisation, and current price volatility could further delay the necessary investment in new mines,” said Mallin-Jones.

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