Copper prices tumbled to a nearly 16-month low on Thursday, the latest sign of a recessionary fear that will hold the wider industrial metals market.
Its use in everything from home appliances to electric vehicles is generally seen as a measure of economic activity, with copper falling 2 percent to $ 8,564 per ton in the morning trade. It is now down 11 per cent year on year.
After rising sharply after the Russian invasion of Ukraine, copper has fallen this month amid concerns that central banks will rapidly tighten interest rates to curb inflation and China’s stringent Covid-19 lockdown policies.
“The [US Federal Reserve] Aggressively tightening. Copper is becoming expensive to hold. The commodity world is under fire, ”Liberum analyst Tom Price said, referring to copper.
Speaking to the Senate Banking Committee on Wednesday, Fed President Jay Powell conceded that plans to increase borrowing costs this year could push the world’s largest economy into recession.
That message weighs on other metal prices. Aluminum fell nearly 2 per cent on Thursday morning, with nickel losing 1 per cent and tin 10 per cent.
“The metals have given up their profit year. This week, the year of aluminum and copper touches is down. Zinc and nickel are not too far behind, as Chinese demand and Russian supply are higher than expected, leading to the deposition of more stocks on European exchanges.” Said Ehsan Khoman, head of emerging markets research at MUFG.
Copper started the year at about $ 9,800 per tonne, and traded more than $ 10,400 per tonne in early March, fearing that the war in Ukraine would hurt supply.
Those concerns did not eventually emerge, but were replaced by worries over the health of the global economy. Data released on Thursday added to the slowdown, indicating that a trade activity survey showed Germany – Europe’s largest economy – suffered a sharp loss of momentum at the end of the second quarter.
Liberum’s price tag says many general investors have bought copper on the grounds that its value is underpinned by the lack of new projects in the pipeline and the growing demand from the car industry as large manufacturers increase production of electric vehicles.
“This broad, generalized influx has made the copper price sensitive to its own fundamentals since 2020. But things are changing,” Price said.
The sharp fall in metal prices has spread to the mining sector, with stocks of some of the world’s largest producers falling sharply this month. London-listed Rio Tinto is down by about 13 per cent and Anglo American by less than 18 per cent.
In a report released Thursday, analysts at Morgan Stanley said the sector’s macroeconomic background was “deteriorating” and “the central banks’ struggle with inflation and China’s zero-covid policy” continues to reduce demand for metals.
“After two years of additional profits underlying supply shocks and floating demand, we argue that the industry’s revenues are committed to normalization.”
Colin Hamilton, an analyst at BMO Capital Markets, said the price of aluminum, a lightweight metal used to produce drinks cans and airplanes, could be supported by a reduction in production.
Century Aluminum, the largest producer in the US, said on Wednesday that 200,000-tonnes of smelter per year in Kentucky will be skyrocketing over the next nine to 12 months.
“In the coming months we will see the potential for further primary aluminum production cuts in Europe, which will begin to provide some support for prices,” Hamilton said.