Alicia Dowton

Mining and Commodities

Copper extends worst losing streak since 2008 on growth fears

Copper prices have continued their downward trajectory, with the metal falling by 0.7% to $7,748 per ton on the London Metal Exchange as of 10:29 a.m. in Shanghai, following a 4.4% slide over the previous two trading sessions. This comes after copper capped its fifth consecutive monthly loss, marking the longest downward streak since the 2008 financial crisis.

The fall in copper prices can be attributed to a combination of factors, including global recession fears, tightening monetary policy by central banks, and concerns over demand. Copper, often viewed as a bellwether for the global economy due to its widespread use in construction, infrastructure, and electronics, has been hit hard by these factors.

Firstly, global recession fears have put downward pressure on copper prices. The ongoing economic uncertainty caused by the Covid-19 pandemic has led to concerns over a potential global recession. The recent outbreak of the Omicron variant has only added to these fears, with investors worried about the impact of new lockdowns and restrictions on economic activity.

Secondly, tightening monetary policy by central banks has contributed to the fall in copper prices. In the United States, the Federal Reserve has signaled its intention to raise interest rates in response to rising inflation. This has led to a strengthening of the US dollar, which has in turn put downward pressure on copper prices.

In addition, the hawkish drumbeat from central banks around the world has spooked investors, leading to a wave of risk aversion in markets. Cleveland Fed President Loretta Mester reiterated the need to raise the US benchmark rate above 4% by early next year and said she doesn't anticipate cuts in 2023. This has further contributed to the fall in copper prices.

Finally, concerns over demand are outweighing continued challenges on the supply side. Chile, which accounts for more than a quarter of the world's mined copper, reported an 8.6% decline in production in July from a year earlier. In China, Shanghai's two-month lockdown earlier this year is still rippling through the economy, with businesses struggling with a sluggish recovery and stalled demand.

Furthermore, anxiety remains high that Europe's energy crisis, tighter monetary policy by the Federal Reserve, and China's Covid Zero strategy will keep hitting demand. The copper market is pricing in rising expectations of more rate hikes by the Fed, which is further contributing to the downward pressure on prices.

As a result, copper prices are falling, with the metal being traded at $7,748 per ton on the London Metal Exchange as of 10:29 a.m. in Shanghai. Other base metals were mostly lower, with zinc down 1.1% to $3,420 per ton.

In conclusion, copper prices have fallen amidst global recession fears and tightening monetary policy. The market is pricing in rising expectations of more rate hikes by the Federal Reserve, and concerns over demand are outweighing challenges on the supply side. Businesses are struggling with a sluggish recovery and stalled demand due to Covid-related lockdowns and restrictions. As such, copper prices may continue to fall until the demand and supply balance reaches equilibrium. Investors should keep a close eye on developments in the global economy, central bank policy, and Covid-related restrictions, as these are likely to be key drivers of copper prices in the coming months.

Written by Alicia Dowton
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Source: MoneyWeb
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