Copper prices fell to a nearly 16-month low on Thursday in the latest sign of recession fears gripping the broader industrial metals market.
Often seen as an indicator of economic activity due to its use in everything from appliances to electric vehicles, copper fell 2% to $8,564 a tonne in morning trade. It is now down 11 percent for the year.
After rising sharply following Russia’s invasion of Ukraine, copper fell this month on fears that demand could be dampened by central banks rapidly raising interest rates to curb inflation. and China’s strict Covid-19 lockdown policies.
“The [US Federal Reserve] tightens aggressively. Holding copper is expensive. The commodity world’s flagship is under fire,” Liberum analyst Tom Price said, referring to copper.
Speaking to a Senate Banking Committee on Wednesday, Fed Chairman Jay Powell acknowledged that plans to raise borrowing costs this year could tip the world’s largest economy into recession.
This message also weighed on the prices of other metals. Aluminum fell almost 2%, nickel 1% and tin 10% on Thursday morning.
“Metals gave up their year of gains, with aluminum and copper hitting yearly lows this week, with zinc and nickel not too far behind as Chinese demand and higher than expected Russian supply lead to more shares being filed on European exchanges,” said Ehsan Khoman, head of emerging markets research at MUFG.
Copper started the year at around $9,800 a ton and traded above $10,400 a ton in early March on concerns that the war in Ukraine could affect supply.
These concerns were ultimately not confirmed, but were instead replaced by worries about the health of the global economy. Data released on Thursday added to signs of a slowdown, with a survey of business activity indicating that Germany – Europe’s largest economy – suffered a sharp loss of momentum at the end of the second quarter.
Liberum’s Price said many generalist investors had bought copper on the grounds that its value was supported by a lack of new projects underway and growing demand from the automotive industry as major manufacturers increased production of electric vehicles.
“This broad generalist inflow has made the price of copper desensitized to its own fundamentals since 2020. But things are changing,” Price said.
The sharp drop in metal prices has also spilled over into the mining sector, with shares of some of the world’s largest producers falling sharply this month. London-listed Rio Tinto fell nearly 13% and Anglo American more than 18%.
In a report on Thursday, Morgan Stanley analysts said the macroeconomic backdrop for the sector had “deteriorated” as “central banks’ fight against inflation intensifies and China’s zero Covid policy” continues. curb the demand for metals.
“After two years of excess earnings supported by supply shocks and sustained demand, we argue that industry returns are set to normalize.”
Colin Hamilton, an analyst at BMO Capital Markets, said the price of aluminum, a lightweight metal used to produce beverage cans and airplanes, could be supported by production cuts.
Century Aluminum, a major U.S. producer, said on Wednesday it would mothball a 200,000-ton-per-year smelter in Kentucky for the next nine to 12 months, citing soaring electricity prices.
“We see potential for further reductions in primary aluminum production, particularly in Europe, over the coming months, which should start to support prices,” Hamilton said.