Demand headwinds weigh on prices of industrial metals

LONDON: Industrial metal prices fell on Thursday as the outlook for demand deteriorated after the U.S. Federal Reserve’s large rate hike fuelled worries about recession and data from top consumer China indicated weak growth.

Benchmark copper on the London Metal Exchange was down 2.1% at $9,039 a tonne at 1429 GMT from an earlier one-month low of $9,022. Three-month aluminium fell 2.9% to $2,518, after earlier hitting its lowest since Nov. 5 at $2,510.5.

“Metals demand is at risk as accelerated monetary policy tightening led by developed economies threatens to hamstring economic growth and trigger a possible recession,” said Tom Mulqueen, analyst at Amalgamated Metal Trading.

“Soaring inflation also threatens to curb consumer goods spending as the rising cost of living hits disposable income and confidence.”

US: The Fed hiked interest rates by 75 basis points on Wednesday, the largest increase since 1994, to rein in soaring inflation. The U.S. central bank expects to raise interest rates steadily for the rest of 2022.

The European Central Bank last week signalled a string of rate hikes from July, while the Bank of England raised rates 25 basis points to 1.25% on Thursday.

Data: China’s new home prices fell for the second month this year, depressed by still fragile demand as widespread COVID-19 curbs dented already weak buyer confidence.

“A China demand rebound from second quarter COVID-19 lockdowns could offer some respite, but is vulnerable to the ongoing threat of new outbreaks and restrictions under China’s zero-COVID approach,” Mulqueen said.

Dollar: Higher U.S. rates have boosted the U.S. currency, making dollar-priced commodities more expensive for holders of other currencies.

Inventories: Low stocks in LME approved warehouses are providing some support for industrial metals.

Aluminium stocks are at 21-year lows of 411,575, copper stocks at 121,000 are near two-year lows, zinc stocks at 79,575 are at their lowest since April 2020 and lead stocks at 38,825 tonnes are at 2007 lows.

Prices: Zinc was down 1.8% at $3,576 a tonne, lead gained 0.8% to $2,094, tin ceded 1.7% to $31,895 and nickel slid 2.3% to $25,270.