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.
Benchmark copper on the London Metal Exchange (LME) was down 0.9% at $8,880 a tonne by 0939 GMT after touching its lowest since Sept. 21 at $8,830.
“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.
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Interest Rates: The U.S. 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% on Thursday 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.
“We forecast a broadly balanced global copper market in 2022, with a shift to surplus in second half of 2022 and 2023 to result in a rebuild of depleted copper inventories,” UBS analysts said in a note.
“The economic backdrop is not consistent with the 3-5% per annum demand growth needed to keep the market balanced/in deficit in 2023/2024.”
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 was down 0.2% at $2,493 a tonne, zinc fell 0.7% to $3,498, lead ceded 0.2% to $2,058, tin slid 1.7% to $30,655 and nickel lost 1.1% to $25,375.