LONDON: Copper prices hit nine-month lows on Monday as higher interest rates fuelled worries over a potential global recession and weaker demand for industrial metals, particularly in top consumer China.
After touching its lowest since Sept. 21 at $8,830, benchmark copper on the London Metal Exchange (LME) later pared losses to trade down 0.02% at $8,960 a tonne by 1600 GMT.
“The mood is very much risk-off because policymakers are raising rates to control inflation,” said SP Angel analyst John Meyer, adding that sentiment is also being driven by concern over demand slowdown in China because of its zero-COVID policy.
ALUMINIUM: Global primary aluminium output in May rose 0.43% year on year to 5.805 million tonnes, data showed.
INTEREST RATES: The US Federal Reserve raised rates by 75 basis points last week for the largest increase since 1994. It expects to raise rates steadily over 2022.
The European Central Bank last week signalled a string of rate increases from July while the Bank of England raised rates 25 basis points to 1.25% last week and the Swiss National Bank raised rates for the first in 15 years.
DEMAND: China’s strict zero-COVID policy of constantly monitoring, testing and isolating its citizens to prevent the spread of the coronavirus has battered the country’s economy and manufacturing sector.
Rate cuts by China’s central bank to stimulate growth are also difficult in the face of increases elsewhere, with potential for a depreciating yuan and capital outflows.
“Aside from it wanting to avoid further divergence from the path the US Fed has adopted, it is more than likely that the central bank is taking a wait-and-see approach as it wants to save ammo until the economy is broadly open,” broker Marex said in a note.
“But (there is) certainly no meaningful support for China’s domestic property sector, whose slowdown is seen as being greater than any fiscal stimulus the government might implement.”
INVENTORIES: Support for copper prices comes from low stocks in LME-registered warehouses. At 117,025 tonnes, stocks are down 35% since mid-May.
OTHER METALS: Aluminium gained 1.4% to $2,533 a tonne, nickel edged up 0.3% to $25,735, lead advanced 1.3% to $2,087.50 and zinc added 0.1% to $3,528, but tin slid 0.6% to $31,000.