Copper prices fell to a 16-month low on Thursday in the latest sign of recession fears gripping the wider industrial metals market.
Often seen as a gauge of economic activity because of its use in everything from household appliances to electric vehicles, copper was 4.5 per cent lower at $8,387 a tonne in late trading. It is now down 14 per cent for the year.
Having climbed sharply after Russia’s invasion of Ukraine, copper has fallen this month over concerns that demand will be crimped by central banks rapidly raising interest rates to curb inflation and by China’s tough Covid-19 lockdown policies.
“The [US Federal Reserve] is tightening aggressively. Holding copper’s getting expensive. The commodity world’s flagship is under fire,” said Tom Price, an analyst at Liberum, referring to copper.
Speaking to a Senate banking committee on Wednesday, Fed chair Jay Powell conceded that plans to raise borrowing costs this year could tip the world’s largest economy into recession.
That message also weighed on other metal prices. Aluminium fell 2.67 per cent, nickel lost 1.7 per cent and tin slid 9 per cent on Thursday.
“Metals have given up their year of gains, with aluminium and copper touching year lows this week, with zinc and nickel not too far behind, as Chinese demand and higher-than-expected Russian supply is leading to more stocks deposited on to European exchanges,” said Ehsan Khoman, head of emerging markets research at MUFG.
Copper started the year at around $9,800 a tonne and went on to trade above $10,400 a tonne in early March over worries that the war in Ukraine would hit supply.
Those concerns were not ultimately borne out, but were instead replaced by worries over the health of the global economy. Data released on Thursday added to signs of a slowdown, with a business activity survey indicating that Germany — Europe’s biggest economy — suffered a sharp loss of momentum at the end of the second quarter.
Liberum’s Price said that many generalist investors had bought copper on the grounds that its value was underpinned by a lack of new supply projects in the pipeline and rising demand from the car industry as big manufacturers ramp up production of electric vehicles.
“This vast, generalist inflow has rendered copper’s price insensitive to its own fundamentals since 2020. But things are changing,” said Price.
The sharp drop in metal prices has also spilled over into the mining sector, with shares in some of the world’s biggest producers down sharply this month. London-listed Rio Tinto has dropped almost 13 per cent and Anglo American is down more than 18 per cent.
In a report published on Thursday, analysts at Morgan Stanley said the macroeconomic backdrop for the sector had “deteriorated” as “central banks’ fight with inflation escalates and China’s zero-Covid policy” continued to damp demand for metals.
“After two years of excess profits underpinned by supply shocks and buoyant demand, we argue that the industry’s returns are bound to normalise.”
Colin Hamilton, analyst at BMO Capital Markets, said the price of aluminium, a lightweight metal used in making drinks cans and aeroplanes, might find support from production cuts.
Century Aluminum, a big US producer, said on Wednesday that it would mothball a 200,000-tonne-per-year smelter in Kentucky for the next nine to 12 months, citing soaring power prices.
“We see potential for further primary aluminium production cuts, most notably in Europe, over the coming months, which should start to provide some support to prices,” said Hamilton.