Copper rout worsens as recession fears hit commodity markets

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A rout in the copper market deepened on Friday, with the price of the world’s most important industrial metal slipping below $7,000 a tonne for the first time since November 2020 as recession fears gripped markets .

The benchmark copper contract on the London Metal Exchange fell 1.6% to $6,987 as concerns over the slowdown intensified after weak economic data out of China. The price then recovered to trade at $7,165, up 1%, after a string of upbeat US economic data.

The decline put copper on track for its worst weekly loss since the depths of the coronavirus pandemic in March 2020.

“Concerns over declining Western economies and the impact of a sluggish property market as well as repeated Covid-19 shutdowns in China have seen a market worried about the loss of Russian metal supply . . . guidance,” said Peel Hunt analyst Peter Mallin-Jones.

Copper has fallen steeply since hitting a record high above $10,600 a ton in March, when the market was rocked by fears that the Russian 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 affect copper demand. and other raw materials. A stronger dollar has also weighed on copper by making it more expensive for holders of other currencies to buy.

Earlier this week, Goldman Sachs, which has been one of the most bullish voices on commodities, cut its three-month copper price forecast to $6,700 a ton, citing “expectations for growth of more more pessimistic”.

“This latest decline has been linked to increasing headwinds on the European growth trajectory, particularly from the impact of soaring regional natural gas prices on activity,” the bank said.

On Friday, Rio Tinto, one of the world’s largest copper producers, warned of a darkening outlook for the global economy, citing “growing risk” that rapid rate hikes will weigh on U.S. demand and the “considerable headwinds” to which China is recovering from the pandemic shutdowns.

Friday’s data showed China’s economy grew just 0.4% year on year in the three months to the end of June as Beijing’s zero Covid strategy hit activity. China is the world’s largest consumer of raw materials, accounting for half of global copper demand.

Fears of a demand-sapping recession come as the copper industry braces for what analysts have called a ‘final hoorah’ in mining supply as a number of projects have been in development for a decade or more hit the market. Bank of America expects copper supply to grow 7.3% year-on-year in 2023 to 26.8 million tonnes. To put that number in perspective, growth has averaged just 2.4% over the past 10 years.

Copper bulls identify a silver lining to the current selloff, suggesting it will make miners reluctant to approve new projects that will be needed later in the decade as the world shifts to cleaner forms of energy.

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 by 2035, due to its uses in electric vehicles, charging infrastructure, solar panels, wind turbines and batteries.

“Copper stands to be a big beneficiary of the accelerated decarbonization agenda and current price volatility could further delay needed investment in new mines,” Mallin-Jones said.

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